World markets flat ahead of European rate decisions as dollar slide continues

By Pan Pylas, AP
Thursday, October 7, 2010

World markets flat but dollar slide continues

LONDON — World stock markets edged higher but the dollar’s slide continued Thursday after the European Central Bank kept its main interest unchanged at 1 percent and its president warned of the economic impact of excess volatility in the currency markets.

The euro struck a fresh eight-month high of $1.4028 as ECB chief Jean-Claude Trichet said disorderly moves in foreign exchange markets have adverse implications for growth and that he was looking to discuss currencies at this weekend’s meetings of central bankers and finance ministers in Washington.

In Europe, the FTSE 100 index of leading British shares was up 22.65 points, or 0.4 percent, to 5,704.04 while Germany’s DAX rose 35.74 points, or 0.6 percent, at 6,306.47. The CAC-40 in France was 29.18 points, or 0.8 percent, higher at 3,794.09.

Wall Street was poised for gains at the open after better than expected weekly jobless claims figures stoked hopes that Friday’s nonfarm payrolls data may outperform market expectations — Dow futures were up 59 points, or 0.5 percent, at 10,965 while the broader Standard & Poor’s 500 futures rose 7.3 points, or 0.6 percent, to 1,163

Stocks have been buoyed since Tuesday’s decision by the Bank of Japan to cut its interest rate to near zero percent and its announcement it is preparing a 5 trillion yen ($60 billion) fund to buy government bonds and other assets to prop up the faltering Japanese economy.

Investors have concluded that the Federal Reserve will itself resume asset purchases of some form or other in the next few weeks — the most likely date is thought to be Nov. 3 at the conclusion of its next rate-setting meeting.

Much could well hinge on Friday’s U.S. nonfarm payrolls data, which often set the market tone for a week or two after their release. Most economists think the figures won’t be good enough to stop the Fed from announcing fresh stimulus measures.

The prospect of more dollars in the system have underpinned stocks around the world, but have weighed hard on the U.S. currency itself. By mid afternoon London time, the euro was 0.5 percent higher at $1.3994, shy of its earlier eight-month high.

Though Trichet voiced his concerns about developments in the currency markets, the euro rose further as investor sentiment was boosted by the news that U.S. jobless claims fell by 11,000 to a seasonally adjusted 445,000 — the lowest level since the week ending July 10.

Meanwhile, the dollar was down 0.7 percent at 82.28 yen, just above its earlier 15-year low of 82.12 yen.

The markets are on the lookout for another intervention by the Bank of Japan now that the dollar has fallen below the 82.87 yen level it intervened last month.

Even though, the rate is below the intervention rate, analysts still think that the Japanese authorities can claim a level of success from its earlier action but will need to enter the markets once again to prevent a drop below 80 yen.

“If it were not for the threat of intervention from the Japanese authorities, it is likely that the dollar would be trading closer to its record low at 79.75 yen,” said Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ.

“To maintain the credible threat of intervention in the market they will soon have to intervene again as the previous pre-intervention low has now been taken out,” he added.

Besides economic indicators and central bank decisions, the quarterly earnings reporting season begins Thursday — aluminum company Alcoa Inc. is the first major company to report

“Alcoa’s results will be particularly important as they will set the agenda for third quarter earnings,” said David Buik, markets analyst at BGC Partners.

Trading had been fairly subdued in Asia earlier, with South Korea’s Kospi closing down 0.2 percent to 1,900.85 while Japan’s Nikkei 225 stock averaged dropped 0.1 percent, to 9,684.81. Hong Kong’s Hang Seng index ended flat at 22,884.32.

Benchmark oil for November delivery was up 45 cents at $83.68 a barrel in electronic trading on the New York Mercantile Exchange.


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

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