Sep 14 2012
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GLOBAL MARKETS: European Stocks, Euro Advance on Fed Move
Friday, Sep 14, 2012
By Nina Bains and Michele Maatouk
European stocks rose, the euro gained ground against the dollar and commodity prices rallied Friday as investors welcomed the Federal Reserve's latest efforts to bolster the flagging U.S. economy.
The Fed said Thursday that it will purchase $40 billion worth of mortgage-backed securities a month, while extending Operation Twist--a program whereby the Fed attempts to keep interest rates down by selling short-term bonds and using the proceeds to buy long-term bond bonds. The central bank, which also said it was willing to take more action to help the economy if the labor market doesn't improve, lowered its growth outlook for this year, but was more optimistic about the next two years.
While the reaction to the announcement was positive, some were already beginning to speculate whether it will be enough in the long term. "We believe the Fed move was a game-changer and markets are expected to rally further the next couple of weeks," said Arne Lohmann Rasmussen, chief analyst at Danske Bank. "Of course, it is up for interpretation what a substantial improvement [in the labor market] means."
With investors happy to pile into riskier assets, the safe-haven December bund contract dropped 135 ticks to 138.94.
At 1040 GMT, the euro hit $1.31 for the first time since May 4, from $1.2987 late Thursday in New York. Meanwhile, the dollar traded below 0.93 against the Swiss franc for the first time since May 14. Overnight, the dollar weakened to a seven-month low against the yen of 77.13, but by 1040 GMT it had gained back some ground to trade at Y78.00 from Y77.48.
Although financial markets were buoyant, worries about the euro zone's more fragile economies were never far from investors' minds, as the region's leaders and finance ministers began their informal meetings in Cyprus, with Spain and Greece likely to be high on the agenda. Investors are becoming increasingly impatient with Spain's Prime Minister Mariano Rajoy, who remains defiant despite being under pressure to seek a full euro-zone bailout. Data earlier Friday showed Spanish government debt had risen to 75.9% of gross domestic product in the second quarter, hitting new highs as the government struggles to finance a towering budget deficit.
Outside Europe's core, Spain's benchmark IBEX-35 index was 2.6% higher at 8146.20, Italy's FTSE Mib was up 2.2% at 16,603.80 and Greece's ASE Composite index was up 2.2% at 758.00.
The impact of the Fed's move on fiscally strained euro-zone sovereign debt was a little more muted, however. Spain's 10-year government bond yield was little changed at 5.62%, while Italy's corresponding bond yield was five basis points lower at 4.96%, according to Tradeweb. Yields had already fallen significantly since the European Central Bank's announcement on Sept. 6 and are at multi-month lows.
Commodity prices rallied in the wake of the Fed's announcement. October Nymex crude oil futures were up $1.70 at $100.01 a barrel--Nymex hasn't breached $100 a barrel since May 4. The October Brent oil contract was up $1.75 at $117.63, while spot gold was up $7.40 at $1,773.90.
Ahead of U.S. markets opening, the Dow Jones Industrial Average and S&P 500 front-month futures contracts were up 0.4% at 13,504.00 and 1457.80, respectively. On the economic calendar, U.S. CPI and retail sales figures are due at 1230 GMT, industrial production at 1315 GMT, University of Michigan confidence data at 1355 GMT and wholesale inventories at 1400 GMT.
--Neelabh Chaturvedi contributed to this item.
Write to Nina Bains at email@example.com and Michele Maatouk at firstname.lastname@example.org
(END) Dow Jones Newswires
September 14, 2012 07:17 ET (11:17 GMT)
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