Yen hits 15-year high after Kan reelection; stocks steady after upbeat US retail sales data

By Pan Pylas, AP
Tuesday, September 14, 2010

Global stocks hold steady as yen hits 15-year high

LONDON — A bigger than expected rise in U.S. retail sales data supported stocks Tuesday, a day after markets rallied on the view that new global bank rules will prove to be less onerous than anticipated.

The Japanese yen, meanwhile, hit a fresh 15-year high against the dollar as Japan’s prime minister survived a leadership challenge — by mid afternoon London time, the dollar had fallen to as low as 82.93 yen.

In Europe, the FTSE 100 index closed up just less than 2 points at 5,567.41 while Germany’s DAX rose 13.73 points, or 0.2 percent, to 6,275.41. The CAC-40 in France ended 7.25 points, or 0.2 percent, higher at 3,774.40.

In the U.S., the Dow Jones industrial average was up 27.47 points, or 0.3 percent, at 10,571.60 around midday New York time, while the broader Standard & Poor’s 500 index rose 2.88 points, or 0.3 percent, to 1,124.78.

Stocks have traded in fairly narrow ranges Monday a day after sentiment was buoyed by new rules requiring banks to hold more capital as a buffer against future difficulties. The recommendations, which are set to be approved by the leaders of the Group of 20 leading industrial and developing countries in November, were widely thought to be less stringent than investors had expected.

Despite ongoing concerns that shares may be overpriced following three weeks of gains, sentiment was supported by Commerce Department figures showing that retail sales in the U.S. rose by a monthly 0.4 percent in August, modestly higher than the 0.3 percent anticipated in the markets.

The second straight monthly rise was largely due to back-to-school sales and continues the past week’s run of better than anticipated U.S. economic data, which has helped stocks around the world rally.

U.S. retail sales are particularly important because U.S. consumer spending accounts for around 70 percent of the world’s largest economy.

“Evidence of renewed life in household spending suggests that market pessimism over the summer did not completely knock out the consumer,” said Michael Woolfolk, an analyst at Bank of New York Mellon.

“The way the market is positioned ahead of this week’s heavy data calendar, expect positive data to be positive for equities and negative for the dollar,” said Woolfolk.

The euro did indeed prosper against the dollar, rising 0.8 percent to $1.2985 despite mounting evidence of a faltering economic recovery in Europe.

The EU’s statistics office said industrial production for the 16 countries that use the euro was flat in July, against expectations for a modest increase, while the closely watched ZEW survey of German investor sentiment was much weaker than expected.

The fall in ZEW’s headline expectations indicator dropped from 14 in August to minus 4.3 in September. That was the first negative since March 2009 and provided further evidence that the big economic rebound in Germany during the second quarter has come to an end.

Earlier in Asia, the main focus was on the vote for the re-election of Prime Minister Naoto Kan as leader of the Democratic Party. His re-election has yet to be gauged in the stock markets as the result came after the Japan’s Nikkei closed 0.2 percent lower at 9,299.31 points.

The victory means Kan, who has been in office three months, will remain in power, providing some continuity for a country that has seen five leadership changes in the past four years, and is dealing with a surging currency and a spat with China over disputed islands.

Both Kan and Ozawa have made comments hinting at possible intervention, though Ozawa’s were seen as stronger in tone, hence the yen’s sustained rally Tuesday.

“Investors were speculating that if Ozawa won, Japan would intervene to boost the dollar,” said Yu Yokoi, a foreign exchange dealer at Mizuho Bank. “But Ozawa lost, and investors quickly reacted to it as the scenario of dollar-supporting intervention is less likely.”

Shanghai’s benchmark stock index eked out a marginal increase of less than 0.1 percent to 2,688.52.

Oil prices advanced once again ahead of key U.S. supply data — benchmark crude for October delivery was up 64 cents at $77.83 a barrel in electronic trading on the New York Mercantile Exchange.

AP Business Writer Kelly Olsen in Seoul, South Korea contributed to this report.

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