Thursday, Mar 15, 2012

--European stocks listless; nudging up and down as traders seek direction

--Currencies in focus following recent gains in dollar; SNB reiterates policy

--Gilts, FTSE, British pound react to Fitch downgrade of the U.K.'s outlook

--Spanish bond auction well received

By Michele Maatouk & Andrea Tryphonides

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--London's FTSE 100 fell and gilts pushed lower following a downgrade to the U.K.'s outlook by ratings company Fitch, while currencies were in focus Thursday as the dollar cooled after its recent strong streak against a basket of currencies, and the Swiss National Bank reiterated its policy of monitoring the strength of the Swiss franc against the euro.

Overall, though, European stocks were lackluster Thursday, bobbing up and down as investors took a breather following the strong rise in equities this week on an improving economic picture in the U.S.

"The bull run appears to have run out of steam," said Mike McCudden, head of derivatives at Interactive Investor.

At 1040 GMT, the benchmark Stoxx Europe 600 index was flat at 270.22. London's FTSE 100 was down 0.1% at 5940.77, underperforming a touch versus its European peers after Fitch on late Wednesday cut its outlook on the U.K. to negative. Fitch said the country's financial flexibility to handle a financial shock is "very limited."

Gilts were having a less promising European session following the Fitch move. "The move by Fitch is likely to imbue the government's austerity strategy with renewed vigour, particularly given that the agency's statement cites 'a discretionary fiscal easing' as one of the triggers that could cause the U.K. to lose its 'AAA' status," said BNP Paribas. "The Chancellor delivers his Budget Statement next Wednesday; this development could mean less room for manoeuvre," added BNP Paribas. At 1040 GMT, June gilts were down 0.56 at 112.43.

Elsewhere, Frankfurt's DAX was 0.3% higher at 7101.75 and Paris's CAC-40 was up 0.1% at 3569.05.

There was some good news to be found in the bond markets. The Spanish Treasury sold EUR3 billion of bonds at auction, within the target range and with yields mostly lower. "All in all, demand for the Spanish debt remained solid despite recent talks of further slippage in their fiscal consolidation," said Newedge.

On the corporate front, Tesco fell 1.4% after announcing the departure of its U.K. chief executive, Richard Brasher. Tesco has had mixed fortunes of late. After several years of falling sales in the U.K. and a particularly dire Christmas period the group warned in January that it will make minimal profit in 2013. Brasher was seen as the chief architect of the Big Price Drop, a major cost-cutting campaign launched last year, which has largely been seen as ineffective.

Deutsche Lufthansa declined 2.4% after it warned that high crude oil prices and persistent economic uncertainty pose serious risks for its business in 2012.

UBS, meanwhile, ticked down 0.2% after saying it has slashed its overall bonus pool for 2011 by 40% to CHF2.6 billion ($2.8 billion). The bank cited its weaker performance last year, particularly at the investment bank as one of the reasons for the move.

In foreign exchanges, the dollar trimmed gains following a stellar rise on a recent string of positive U.S. data that have diminished expectations of another round of easing from the Federal Reserve. The dollar broke through Y84.00 against the yen to a fresh 11-month high at Y84.17, from Y83.72 late Wednesday in New York. But at 1040 GMT, it was buying Y83.54. The euro was at $1.3049 against the greenback, from $1.3032, and the British pound was at $1.5649 from $1.5670, after Fitch's statement on the U.K.

The Swiss franc was also in focus, after the Swiss National Bank said it will maintain the minimum exchange rate of 1.20 Swiss francs per euro "with the utmost determination."

ING Bank economist Julien Manceaux said, "[The SNB] once again stated that it is 'prepared to buy foreign currency in unlimited quantities for this purpose,' a strategy which is working as the SNB stabilized its assets in foreign currencies over the last few months." The euro was at CHF1.2113 from CHF1.2128.

Spot gold was at $1,648.00 per troy ounce, up $4.50 from its New York settlement on Wednesday. April Nymex crude oil futures were up $0.11 at $105.54 per barrel and May Brent oil futures were down $0.03 at $124.55.

The June bund contract was down 0.31 at 136.49. On Wednesday the bund fell sharply, pushing yields to their highest levels in almost a month, as they tracked weakness in U.S. Treasurys after the Federal Reserve gave a slightly more upbeat take on the world's largest economy earlier in the week.

Still to come Thursday, investors should see final approval of the International Monetary Fund's participation in the second Greek bailout, which looks to be fixed at EUR28 billion, according to the most recent official statements. This follows official approval of the bailout from the European Union on Wednesday.

Meanwhile, U.S. futures pointed to an equally uneventful start on Wall Street, with the Dow Jones Industrial Average front-month futures contract up 0.1% at 13,144.00 and the S&P 500 futures contract 0.2% higher at 1391.20. There is a slew of data to watch for, with initial jobless claims, Empire State manufacturing and PPI all due at 1230 GMT.

-By Michele Maatouk, Dow Jones Newswires; +44-20-7842-9447; michele.maatouk@dowjones.com

(END) Dow Jones Newswires

March 15, 2012 07:00 ET (11:00 GMT)