US data fail to boost stock markets as dollar falls to one-month euro low

By Pan Pylas, AP
Thursday, September 16, 2010

US data fail to lift stock markets

LONDON — A solid set of U.S. economic data Thursday failed to boost stock markets or provide much support for the dollar, which fell to its lowest level against the euro for over a month, a day after the Bank of Japan intervened in the currency markets to stop the export-sapping appreciation of the yen.

In Europe, the FTSE 100 index of leading British shares closed down 15.42 points, or 0.3 percent, at 5,540.14 while Germany’s DAX fell 12.22 points, or 0.2 percent, to 6,249.65. The CAC-40 in France ended 19.34 points, or 0.5 percent, lower at 3,736.30.

In the U.S., the Dow Jones industrial average was down 20.13 points, or 0.2 percent, at 10,552.60 around midday New York time, while the broader Standard & Poor’s 500 index fell 4.73 points, or 0.4 percent, at 1,120.34.

“Despite a buoyant time for shares over the last few weeks, the economic recovery still remains fragile,” said Yusuf Heusen, senior sales trader at IG Index. “It doesn’t yet feel as if markets are quite ready to give up the gains seen this month - but traders are definitely looking for further convincing reasons to keep on buying.”

Figures showing that the number of newly laid-off workers seeking U.S. unemployment benefits dropped by 3,000 last week to 450,000 — its lowest level in two months — failed to drive stock markets, though it may be a sign that labor market conditions are improving.

And though the monthly survey of manufacturing conditions in the mid-Atlantic from the Federal Reserve Bank of Philadelphia improved, it still points to a decline in output. The so-called Philly Fed index improved to minus 0.7 in September from August’s minus 7.7.

The data provided the dollar a brief filip but that didn’t last long — by late afternoon London time, the euro was trading up 0.6 percent on the day at $1.3093, having earlier breached the $1.31 level for the first time in over a month.

The euro has been in demand the past couple of days in the wake of the Bank of Japan’s first intervention in six years.

Though that was designed to affect the yen’s value against the dollar, it has had repercussions through the currency markets. The primary impact elsewhere has been a sharp rise in the euro’s value against the dollar — before the intervention, the euro was trading below $1.30.

Analysts explained that over the last month or so, the yen has borne the brunt of the dollar’s depreciation and now that a “line in the sand” has been drawn by the Bank of Japan, there’s little upside in chasing the yen much higher right now. On Tuesday, the dollar had fallen to a 15-year low of 82.87 yen.

Earlier, Japan’s Nikkei 225 stock average closed down 0.1 percent at 9,509.50 as it held onto its big gain from the previous day. On Wednesday, the index jumped more than 2 percent as investors cheered the intervention — the prevailing view in the markets is that the Bank of Japan splashed out around $20 billion Wednesday in its attempt to knock the yen off its 15-year highs against the dollar.

A day on, the yen remains well below the levels it was trading — by mid afternoon London time, the dollar was 0.1 percent lower at 85.68 yen — before the intervention it had traded as low as 82.87 yen.

Precedence suggests that the Bank of Japan will intervene in the markets once again — speaking at a business leaders’ meeting Thursday, Japan’s Prime Minister Naoto Kan said Japan will “continue to take firm action” against the yen’s rise.

Though further intervention is likely, the reaction in the markets will likely be less marked than the 3 percent decline it managed Wednesday as the element of surprise will have gone.

“It is often the case that the first bout of intervention has the most impact on the market with further intervention subject to the law of diminishing returns,” said Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ.

Meanwhile, China’s Shanghai Composite Index slid 1.9 percent to a three-week low of 2,602.46 as investors worried that the banking regulator will order banks to raise the amount of capital they hold in reserve following a surge in lending over the previous year. The Shenzhen Composite Index for China’s smaller second exchange dropped 2.2 percent to 1,156.51.

Australia’s S&P/ASX 200 dropped 1.2 percent to 4,605.30 and South Korea’s Kospi declined 0.7 percent to 1,811.85. Hong Kong’s Hang Seng fell 0.2 percent to 21,691.45.

Benchmark crude for October delivery was down $1.11 at $74.91 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 78 cents to settle at $76.02 a barrel on Wednesday.

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