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GLOBAL MARKETS-Stocks edge lower as central bank rally pauses
September 17, 2012 / 7:28 AM / 5 years ago

GLOBAL MARKETS-Stocks edge lower as central bank rally pauses

* FTSEurofirst 300 down 0.3 pct
    * Euro/dollar flat
    * German Bund futures up 16 ticks

    By Simon Jessop
    LONDON, Sept 17 (Reuters) - European stocks slipped and
Spanish bond yields crept up on Monday as investors banked some
of their recent gains and refocused their attention on the
economic outlook and potential hurdles for the euro zone's
crisis-fighting plans.
    German Bund prices rose 16 ticks, clawing back some
of their sharp falls from Friday when markets across Europe
reacted to news the U.S. Federal Reserve would pump $40 billion
a month into the economy until the jobs market improves.
    Wall Street was also seen opening in negative territory
having ended last week with the S&P 500 at its highest in almost
five years. 
    Sentiment across markets remains broadly unchanged, however,
with tests of new multi-month highs expected in the coming weeks
for stocks and the single currency.
    "Nearer-term the liquidity is undoubtedly market friendly
but it doesn't necessarily change the fundamental problems that
still lie ahead," said Deutsche Bank strategist Jim Reid.
    "We think Europe will go back to worrying about this (growth
prospects for weaker members) in Q1 2013 in spite of the ECB
move... As for the US... there's no reason to believe an
additional injection of liquidity will suddenly catapult this
recovery."    
    At 1230 GMT, the FTSEurofirst 300 index of leading
European stocks was down 0.3 percent at 1,116.9 points, pulling
back from a 14-month high hit in the previous session. World
stocks, meanwhile, were down 0.21 percent.    
    Asian stocks were generally higher overnight, with the MSCI
Asia ex-Japan index hitting a 4-1/2 month high. Tokyo markets
were closed although tensions between Japan and China over
disputed territory bubbled in the background.
    "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."
    Commodities including oil, gold and copper
 - all of which had risen strongly last week - leveled
off on Monday.
    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 fillip 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.   
  
         
    EURO FLAT
    The single currency eased in early European trade but traded
flat against the dollar after weaker than expected U.S.
data.
    "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. 
    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 remained near a seven-month low against a basket of key
currencies on Monday and extended losses versus the yen
 after the Empire State new orders index hit its lowest
since November 2010. 
    The dollar's drop in recent weeks has been contrasted by the
euro which has been the strongest performing major global
currency. 
    It is a rise which has 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. 
    ECB member Luc Coene and France's finance minister Pierre
Moscovici are both due to speak in London starting at 1500GMT
and could provide fresh information following policymaker
meetings in Cyprus over the weekend.     
    The reversal of Friday's trend in currencies and stocks also
fed through into the bond market, with German Bunds, up
16 ticks. 
    "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." 
    Reflecting the uncertainty, Spanish 10-year bond yields
 rose back toward 6 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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