That stock News

LONDON (Reuters) – Stocks rose and U.S. government bonds saw their worst sell-off in 18 months on Wednesday as a deal on U.S. taxes highlighted Washington's expansionary fiscal stance and its likely impact on growth and future deficits.

The prospect of higher U.S. deficits forced bond yields near six-month highs and boosted the dollar's appeal.

European equities (.FTEU3) turned positive as investors shifted their attention from euro zone debt worries to focus on the prospects for further recovery, while Wall Street was set to open higher. (.N)

The U.S. plan for a fiscal boost to an economy struggling with high unemployment contrasts sharply with policy in the euro zone, where a sovereign debt crisis has forced economies into ever harsher rounds of spending cuts.

"It's becoming increasingly clear the U.S. is taking a very different approach to the Europeans in dealing with their debt overhang ... they're reflating their way out of it and the Europeans are going the opposite way," said Grant Turley, strategist at ANZ.

U.S. Treasury prices have fallen by 2 percent in two days after President Barack Obama proposed extending tax cuts aimed at support economic growth, reinforcing the Federal Reserve's multi-billion dollar bond-buying program, but unleashed fears about the longer-term rise in the national debt level.

The yield on 10-year Treasuries rose by 5 basis points to 3.19 percent, having risen to 3.255 percent in Asian trading, its highest since late June.

"At the moment, the market is taking the rise in U.S. yields as a positive for the dollar rather than a supply story," said Adam Cole, global head of FX strategy at RBC Capital Markets. "There are rising expectations for growth, where growth is a scarce commodity."

While the economy may gain a much-needed boost from the tax cuts, the move will also likely swell the $1.3 trillion U.S. budget deficit, which has already persisted for nearly two solid years, and this prospect prompted investors to shed Treasuries, thereby driving up the risk premiums on U.S. debt.

"The tax cuts have changed the market's landscape," said Arihiro Nagata, fixed income manager at Sumitomo Mitsui Banking Corp.

"A lot of people are now changing their scenarios. Many economists are saying the tax cuts will push up U.S. growth by 0.5 to 1.0 percentage point."

The rise in U.S. borrowing costs gave the dollar an edge over the euro among yield-hungry investors, thereby also delivering a blow to gold, which has shed 2.5 percent since hitting a record-high on Tuesday, as its investment appeal diminishes as rates rise.

The dollar strength pushed the euro toward important support levels around $1.3200 as the European bloc comes under pressure over high debt levels.

Spot gold was down 0.3 percent on the day at $1,396.25 an ounce, having risen to an all-time high of $1,430.95 an ounce on Tuesday.

The weaker yen gave Japanese stocks a boost on the prospects of improved earnings for exporters.

The benchmark Nikkei average (.N225) rose more than 1 percent to hit its highest level in almost seven months, before closing up 0.9 percent.

With U.S. Treasuries under fire, German government bonds fell, pushing yields on two-year debt up with two-year yields by 4 basis points to 0.9 percent, while yields on the benchmark 10-year Bund rose 5 basis points to just shy of 3.0 percent.

Meanwhile, the stronger dollar weighed on commodities.

U.S. crude oil futures fell for the second day in a row, losing nearly a dollar to trade at $88.01 a barrel, while benchmark industrial metal copper slid more than 1 percent to $8,785 per ton after hitting a fresh peak of $9,044 on Tuesday.

(Additional reporting by Saikat Chatterjee in Hong Kong, Hideyuki Sano in Tokyo and Ian Chua in Sydney; Editing by Toby Chopra)

View the original article here

LONDON – World stock markets surged Thursday while the dollar slid against the euro after the Federal Reserve confirmed that it will buy $600 billion in government bonds over the coming eight months in a fresh attempt to shore up the U.S. economic recovery.

In Europe, the FTSE 100 index of leading British shares was up 101.25 points, or 1.8 percent, at 5,850.22 while Germany's DAX rose 93.51 points, or 1.4 percent, at 6,711.31. The CAC-40 in France was 78.80 points, or 2.1 percent, at 3,921.74.

Wall Street was poised for further gains at the open later, after the Dow Jones industrial average closed Wednesday at its highest level since September 2008 when Lehman Brothers collapsed — Dow futures were up 55 points, or 0.5 percent, at 11,232 while the broader Standard & Poor's 500 futures rose 7.7 points, or 0.6 percent, at 1,205.

Stocks have been buoyed by the Fed's decision Wednesday to buy an additional $600 billion of assets — so-called quantitative easing aimed at creating more dollars and increasing the supply of money in the economy — that will involve it buying $75 billion in Treasury bonds per month until June next year.

The Fed said it would be regularly reviewing the pace of its purchases and the overall package in light of the prevailing economic conditions, meaning that investors will continue to keep a close watch on incoming economic data.

For now, though, the Fed's hope is that the policy will help drive down interest rates for households and businesses, giving the wider economy its source of stimulus — figures last week showed that the U.S. economy is growing at an annualized rate of 2 percent, which is not enough to get a sticky unemployment rate of around 10 percent lower.

Stocks have been buoyed in the weeks running up to the Fed statement in anticipation of another monetary boost and have responded positively to the actual announcement.

"I think it is just as well that the market enjoys this extra stimulus, as I suspect that there is no more from where that came," said David Buik, markets analyst at BGC Partners.

Though the prospect of more dollars in the financial system has been a boon to stocks over the last few weeks, the dollar has tanked. The selling, particularly against the euro gathered pace in the wake of the announcement.

By mid morning London time, the euro was 0.9 percent higher at $1.4257, its highest level since late January.

"The bottom line is that the programme of asset purchases implies more dollar supply and in turn will prevent any dollar recovery over the coming months," said Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole.

Elsewhere in the currency markets, the dollar was actually holding up against the yen, partly because the Bank of Japan is widely expected to follow up with stimulus measures of its own after its meeting on Friday — the dollar was only 0.3 percent lower on the day at 80.90 yen.

Before the Bank of Japan's decision, the European Central Bank and the Bank of England announce their latest policy decisions Thursday. Neither bank is expected to announce fresh policy initiatives.

However, the relative strength of the euro at a time when Europe's debt crisis appears to be bubbling up again could well be a key point of interest at the press briefing of ECB president Jean-Claude Trichet — Ireland appears to be the focal point at the moment as the yield on its 10-year bonds have reached a new euro-era high of 7.6 percent in advance of the government's announcement of deficit-cutting plans and growth forecasts.

"Ireland may be fully-funded until April but its ability to eventually return to wholesale markets has been brought in to question just as its ability to raise revenues has become more demanding," said Neil Mellor, an analyst at Bank of New York Mellon. "If tensions across the eurozone's debt markets grow from current, elevated levels then questions may soon be directed at the EU's ability to come to the rescue once more."

Earlier in Asia, Japan's benchmark Nikkei 225 stock index jumped 2.2 percent to 9,358.78 after being closed for a holiday Wednesday while South Korea's Kospi rose 0.3 percent to 1,942.50 — close to a three-year closing high — and Australia's S&P/ASX 200 gained 0.5 percent to 4,745.30.

Hong Kong's Hang Seng index climbed 1.6 percent to 24,535.63 and China's Shanghai Composite Index closed up 1.9 percent at a seven-month high of 3,086.94.

Commodity prices were big gainers from the Fed's announcement too — benchmark crude for December delivery was up $1.24 at $85.93 a barrel in electronic trading on the New York Mercantile Exchange.

___

Associated Press Writer Pamela Sampson in Bangkok contributed to this report.

View the original article here