September 17, 2012 / 9:23 AM / 5 years ago

GLOBAL MARKETS-Stocks, euro edge lower as QE rally pauses

* FTSEurofirst 300 down 0.2 pct
    * Euro/dollar down 0.2 pct
    * German Bund futures up 15 ticks

    By Simon Jessop
    LONDON, Sept 17 (Reuters) - European stocks and the euro
both eased on Monday, beginning a new week in cautious fashion
after the prospect of fresh U.S. economic stimulus propelled
both to multi-month highs in the previous session.
    Promised support from the U.S. and euro zone central banks
should see both push on to fresh highs in the coming weeks,
traders said. The Federal Reserve announced last week that it 
plans to pump an extra $40 billion a month into the economy
until jobs data improves, while the European Central Bank
outlined its new bond-buying initiative earlier in the month.
    At 0842 GMT, the FTSEurofirst 300 index of leading
European stocks was down 0.2 percent at 1,118.18 points, pulling
back from a 14-month high hit in the previous session. World
stocks were also down 0.2 percent.    
    Asian stocks were generally higher overnight, with the MSCI
Asia ex-Japan index hitting a 4-1/2 month high, although Tokyo
markets were closed. U.S. stocks  ended Friday near
five-year highs.
    "There is still good upside potential for stocks as we are
re-pricing the 'non-break up' of the euro zone. We've just
started to realise all the downside that came from the debt
crisis," Louis Capital Markets trader Jerome Troin-Lajous said.
    "Now, the main signal we need that would fuel this rally
won't be coming from the economic outlook, it will come from the
investment flows. A lot of foreign investors have been strongly
'underweight' European stocks and should start to switch out of
bonds and out of U.S. equities and into European stocks."
    Fund flow data from EPFR showed Europe equity funds posted
their biggest net inflows since early May in the week to Sept.
12, as the ECB action encouraged more investors to take on
equity risk and move out of conservative debt.
    While risk markets should get a filip from the U.S. stimulus
plan, growth is ultimately needed to sustain any recovery, and
here concerns remain.
    "The Federal Reserve's decision to engage in an open-ended
purchase program reinforces the carry trade in the U.S. dollar
and risk assets. It is unlikely to produce meaningful change in
economic growth, in our view," Jefferies analysts said in a
note.
    Commodities including oil, gold and copper
 - all of which had risen strongly last week - were lower
on Monday.
    
    EURO DIP    
    The single currency also eased in early European trade,
edging back from a four-month high hit on Friday as some in the
market booked profits. At 0842 GMT, it traded down 0.2 percent
at 1.3097 against the dollar.
    "We are due some consolidation. We could trade below $1.30
again but will see $1.35 by year-end. It's a combination of
improvements in Europe and deteriorating dollar sentiment," said
Daragh Maher, currency strategist at HSBC.
    While the greenback is expected to remain under pressure in
the coming weeks as the effects of the U.S. stimulus plan work
their way through the system, it was up 0.2 percent against a
basket of currencies on Monday.
    It had hit a seven-month low on Friday.
    While gaining at the expense of the dollar, the euro has
also been supported by the ECB's plan to help lower the
borrowing costs of indebted euro zone countries, if and when the
countries concerned - chiefly Spain - ask for that help.
    The reversal of Friday's trend in currencies and stocks also
fed through into the bond market, with German Bunds, up
15 basis points.
    "A lot of good news is priced in and now the market is
pondering whether or when Spain might require a bailout," said
Rabobank rate strategist Richard McGuire. "The realisation is
dawning it might not be rushing."
    Spanish 10-year bond yields rose to 5.85
percent on Monday. Spain's Prime Minister Mariano Rajoy has said
he would not accept a rescue that dictated spending
cuts. 
    "The market has priced in an actual bailout and the longer
Spain prevaricates, the greater the risk the market will
strong-arm them into accepting a support package," McGuire said.

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