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Cheap prices and Japan recovery lift world stocks

(Reuters) - World stocks climbed further out of their August hole on Monday, lifted by signs of earlier-than-expected recovery in Japan and a growing belief that shares may now be cheap.

European shares, however, failed to keep early gains and dropped into negative territory.

Gold and the Swiss franc, two of the main beneficiaries of recent global risk aversion, fell.

Investors were also weighing calls by Italian Economy Minister Giulio Tremonti for a more coordinated response to the euro zone debt crisis, including the creation of euro bonds, against an immediate rejection of the idea from Germany.

MSCI's all-country world stock index, a broad measure of global equity health, was up half a percent, ratcheting up roughly a six percent gain since hitting an 11-month low last Thursday.

"The markets have been technically very oversold and on that basis alone, they are due for a period of remission from the selling," said Mike Lenhoff, chief strategist at wealth manager Brewin Dolphin.

Bank of America-Merrill Lynch said a "buy" signal had been triggered last week as outflows out of risky assets hit significant levels.

"We note that since 2004, global equities have rallied an average 6.7 percent (in the four weeks that followed the trigger)," the bank's strategists wrote in a note.

Nonetheless, the pan-European FTSEurofirst 300 stocks index was slightly lower.

Shares in Asia were boosted by data showing Japan's economy shrank less than expected in April-June following a devastating earthquake and tsunami in March.

Japan's Nikkei closed up 1.37 percent.

SPILL OVER

The albeit tentative rise in confidence spilled into other assets.

The euro extended its gains against the Swiss franc to more than 3 percent after a Swiss newspaper report said the Swiss National Bank was poised to set a limit for the euro-Swiss franc exchange rate and will use all means to defend it.

The dollar also rallied against the franc, surging 2.7 percent to 0.79883.

Otherwise the U.S. currency was down around a quarter of a percent against a basket of major currencies.

On the euro zone crisis front, Tremonti's call for common euro zone debt issuance was rejected by German Finance Minister Wolfgang Schaeuble, who said such euro bonds would undermine the basis for the single currency by weakening fiscal discipline among member states.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet in Paris on Tuesday to discuss the crisis.

Core euro zone debt was mixed with yields rising on longer-term bonds.

 

[EmpireGlobalfx]

Selloff raises stakes in Sarkozy-Merkel euro zone talks

(Reuters) - The leaders of France and Germany face a stark choice in talks on Tuesday over whether to begin steering the embattled euro zone toward closer fiscal union or risk watching the bloc unravel.

French President Nicolas Sarkozy and German Chancellor Angela Merkel meet in Paris to discuss what further measures they can take to contain Europe's debt crisis, which is now spreading to the continent's core.

Italy has been forced to ramp up its austerity measures and financial market jitters hit France last week with French banks' shares subject to panic selling following rumors that the country could be next to lose its prized AAA debt rating.

Many experts say the only way to ensure affordable financing for the bloc's most financially distressed countries would be for the euro area to issue joint euro zone bonds -- although officials in Paris and Berlin said Tuesday's talks would not address that possibility.

Although the German government has long opposed the idea, support is beginning to emerge, with the country's export association saying on Monday that all other means of fighting the crisis had run out.

Italian Economy Minister Giulio Tremonti said on Saturday that euro bonds would be the best solution to Europe's debt crisis, and some economists say that the euro zone will inevitably come around to accepting the idea.

Ordinary Germans have opposed more help for their weaker neighbors even while their economy has been roaring along. Figures on Tuesday showing German GDP barely grew in the second quarter suggests a slowdown is starting to grip there, making underwriting of euro zone debt an even harder sell politically.

"While German politicians are currently racking their brains on the pros and cons of common Euro bonds, the luxury of having an economy running at "wonder" speed is fading away," said Carsten Brzeski at ING.

The German economy grew by just 0.1 percent in the second quarter, while the French economy stagnated.

"EURO ZONE COLLAPSE"

French economist Jacques Delpla, who co-authored a paper proposing how euro bonds could work, said the euro zone faced collapse unless leaders went beyond an agreement reached at a July 21 emergency summit on the debt crisis.

"If we just stick to the July 21 agreement then, before the end of the year, there will be no euro zone, unless the ECB buys everything."

At the July summit, euro zone leaders agreed to a second bailout package for Greece and to give their European Financial Stability Facility rescue fund broader powers, but the moves provided only a brief respite in the debt crisis, forcing the European Central Bank to buy Italian and Spanish bonds last week.

Euro bonds aside, Sarkozy and Merkel will focus on proposals to improve the euro zone's economic governance, which they told fellow leaders in the bloc at last month's summit that they would issue by the end of August.

In particular, they could discuss holding regular euro zone summits, as France has long sought, or ways of improving peer monitoring of fiscal policies.

Economist Frederic Bonnevay at French think-tank Institut Montaigne said more radical measures were needed even if they did not include euro bonds for now.

"The size and powers of the EFSF need to be expanded dramatically -- that's a secret to no-one," he said, suggesting that its firepower should be raised to as much as one trillion euros from 440 billion euros currently.

Sarkozy, who broke off his summer holiday last week to deal with the market meltdown in French stocks, is to meet with Prime Minister Francois Fillon over lunch to fine tune France's position before he meets Merkel from 10 a.m. EDT.

A joint news conference is due at 12 p.m. EDT.

 

[EmpireGlobalfx]

Poor German data hits stocks and euro

(Reuters) - Stagnant growth in Europe's powerhouse Germany knocked stocks lower on Tuesday and hit the euro, adding to investor fears that the world economy is slowing more than expected.

Focus was also on a meeting in Paris between French President Nicolas Sarkozy and German Chancellor Angela Merkel, with investors looking for any signs of new measures to contain the spreading euro zone debt crisis.

Germany's gross domestic product grew just 0.1 percent in April-June from the previous quarter, below market expectations for an expansion of 0.5 percent.

"The global slowdown is gradually reaching Germany," said Andreas Scheuerle, economist at Dekabank.

The data showed Germany was actually growing at a slower pace than battered, debt-ridden Spain, where gross domestic product grew by 0.2 percent in the second quarter.

Germany's slowdown sent European stocks lower, dragging world equities with them.

The FTSEurofirst 300 was down more than 1 percent and MSCI's all-country world stock index lost a third of a percent.

Stocks have been rebounding somewhat from a battering that took the MSCI index down as much as 20 percent from a three-year high in May.

The U.S. S&P 500 index gained 2.18 percent on Monday. Japan's Nikkei closed up 0.23 percent on Tuesday.

EURO ANGST

The euro was down against both the Swiss franc and the dollar, extending losses after the German data.

It was down 0.8 percent against the Swiss franc at 1.1232 francs and 0.4 percent against the dollar at $1.4301.

The Swiss franc has been a key safe haven for investors during recent market turmoil.

Gold, the other major choice and one of the best-performing assets this year, was up around half a percent at $1773 an ounce.

German government bonds firmed after the growth data, with short-dated paper outperforming.

Some investors were hoping the Franco-German meeting later in the day would come up with ways to improve euro zone governance.

Talk of common euro zone bonds -- increasingly seen as a powerful tool against the region's debt hurdles -- in some of the German media in recent days has lifted hopes before the meeting in Paris.

Both countries have said, however, that euro bonds are not on the agenda.

 

[EmpireGlobalfx]

Sarkozy and Merkel push tax plan, closer economic coordination

(Reuters) - The leaders of France and Germany, under pressure to counter a debt market crisis in Europe, have agreed to float proposals in September for a tax on financial transactions and push for closer joint governance of economic policy, French President Nicolas Sarkozy said on Tuesday.

After talks in Paris, Sarkozy said he and German Chancellor Angela Merkel were also proposing that all 17 euro zone countries commit to balanced finances and write that goal into their constitutional law by summer 2012.

Among other measures announced, he said they would also seek to ensure better cross-border economic government for the euro zone via twice-yearly meetings of leaders and the creation of a two-and-a-half-year presidency to steer this forum.

"We want to express our absolute will to defend the euro and assume Germany and France's particular responsibilities in Europe and to have on all of these subjects a complete unity of views," Sarkozy told a news conference at his Elysee Palace offices, where he was flanked by Merkel.

The two are under pressure to come up with plans to shore up the euro zone and restore financial market confidence after a year and a half of turmoil that has refused to die down despite bailouts of Greece, Ireland and Portugal and the creation of an anti-contagion fund.

 

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Asian shares fall, euro shaky after summit let-down

(Reuters) - Japanese shares fell on Wednesday, dragged down mainly by hi-tech firms, while the euro wobbled after French and German leaders failed to deliver a solution to the euro zone debt crisis and restore investor confidence after a global market rout.

Electronics stocks were weak across Asia after computer maker Dell slashed its 2012 sales forecast late on Tuesday, a deeply bearish signal not only for the shaky state of

global demand but for other hi-tech manufacturers, many of which are listed in Tokyo, Seoul and Taipei.

Japan's Nikkei fell 1 percent, with bellwether tech exporter Sony sliding 2.7 percent after it cut the price of its Playstation 3 gaming console to boost sales.

In South Korea, LG Electronics tumbled 4.5 percent, though the benchmark KOSPI stock index was little changed.

Adding to the cautious mood in Asia, S&P stock futures fell almost half a percent, extending losses on Wall Street overnight.

"Investors have been dumping emerging markets stocks across the board for the first time in the post-Lehman era," said a market report from TrimTabs Investment Research. "Investors are selling Asia without discrimination."

The euro fell to $1.4370 from Tuesday's session high of around $1.4470, as traders expected more downward pressure once markets in Europe open later in the day.

A hotly anticipated meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel fell short of producing a plan of dramatic action to tackle the euro zone's debt crisis, an outcome many market watchers had anticipated.

While long-term deficit reduction has become a pressing problem for many developed economies, many investors fear that calls for immediate spending cuts in many euro zone countries and the United States could retard global growth further.

Germany reported on Tuesday that its economy came close to stalling in the second quarter, though other data showed U.S. industrial output rose at its fasted pace in seven months in July, perhaps indicating the economy started the second half of the year on better footing than many analysts had feared.

ASIAN DEMAND

Still, many fund managers see Asian markets as more promising investment targets than the United States and Europe.

"Asia is not immune to the developed world woes, as the region remains a key exporter," said a survey of investment managers published on Wednesday by Singapore-based Russell Investments.

"However, the domestic story is becoming more and more powerful as countries look inward to drive future growth."

MSCI's broadest index of non-Japanese Asia Pacific shares edged higher, supported by gains in Hong Kong and Australia.

The index has lost around 10 percent since the start of the year, much of it in recent weeks, as sovereign debt problems in Europe and the United States and fears that the U.S. could slide back into recession prompted investors to sell equities and other riskier assets in both emerging and developed markets.

Shares in Hong Kong were boosted by a speech by Chinese Vice-Premier Li Keqiang in which he promised to open more sectors for investment from Hong Kong, while a rise in Australia's main index was tempered by global concerns.

DOLLAR

The dollar index against major currencies rose 0.1 percent. Against the yen, the dollar traded around 76.76, down from more than 80 yen earlier in August.

Gold, attractive to some investors as a refuge from turmoil in currencies, bonds and shares, is one of the best-performing assets this year. It traded at $1,785 per ounce on Wednesday, little changed from the previous session around $30 below the peak it touched last week.

U.S. crude oil futures were up 11 cents to $86.75 per barrel after sliding on Tuesday on worries that flagging global growth will dampen energy demand.

 

[EmpireGlobalfx]

Brent crude rises, above $109 on U.S. gasoline draw

(Reuters) - Brent crude rose on Wednesday, staying above $109 a barrel as a larger-than-expected drawdown in U.S. gasoline stocks and positive U.S. economic data trumped concerns over the euro zone debt crisis.

A meeting between French and German leaders didn't result in any concrete measures to try and find a way out of Europe's sovereign debt problems, but better-than-expected U.S. industrial production numbers helped bolster sentiment.

Brent crude for October rose 55 cents to $109.68 by 0455 GMT. U.S. crude was up 78 cents at $87.41 a barrel, after slipping $1.23 on Tuesday to settle at $86.65.

"The meeting between Sarkozy and Merkel didn't amount to too much and that will cap gains in oil futures," said Victor Shum, an analyst with energy consultancy Purvin and Gertz.

French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed a tax on financial transactions and closer joint governance of economic policy, but did not propose increasing the euro zone bailout fund or selling euro zone bonds.

Asian shares fell on Wednesday and the euro wobbled after the meeting, while safe-haven asset gold held steady near a record high.

U.S. stockpiles of gasoline fell 5.4 million barrels in the week to August 12, well above analyst expectations for a 1.3 million barrel draw, data from the American Petroleum Institute (API) showed on Tuesday. <API/S> The U.S. Department of Energy will release inventory data later on Wednesday.

"The API numbers were quite supportive as gasoline supplies have come down, but risks continue to be on the economic front," said Shum.

ECONOMIC OUTLOOK

Concerns about the debt crisis have weighed on oil markets in recent weeks, adding to worries about weak U.S. economic data that could hit fuel demand.

The euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France, raising fears of a longer-term dip.

There was more upbeat data out of the U.S., with industrial output at the world's top oil consumer recording its best gain in seven months in July.

Also boosting sentiment were comments by China's top state planner on Wednesday that the world's second-largest economy is expected to expand by 7 percent annually over the next five years.

Brent crude may end its rebound at around $109.57 a barrel, while U.S. oil is unlikely to reach $90 per barrel as it faces a strong resistance at $88.17, Reuters technical analyst Wang Tao said.

The conflict in Libya and Syria could further disrupt supplies and support oil prices, analysts said.

"The scale of disruption to Syrian oil production remains unclear, but Syria is reportedly importing gasoline from companies operating in the Mediterranean despite the existing sanctions," said analysts at J.P. Morgan in a report on Tuesday.

"As highlighted by recent statements by the US, even tougher sanctions may be required to limit Syria's ability to participate in the oil market."

Syrian tanks fired on low-income Sunni Muslim districts in the port city of Latakia on Tuesday, the fourth day of an assault which has killed 36 people and forced thousands of Palestinian refugees to flee, activists said on Tuesday.

 

[EmpireGlobalfx]

Swiss National Bank intensifies measures against strong Swiss franc

The measures taken thus far by the Swiss National Bank (SNB) against the strength of the
Swiss franc are having an impact. Nevertheless, the Swiss franc remains massively
overvalued. The SNB has therefore decided to expand again significantly the supply of
liquidity to the Swiss franc money market. In so doing, it is increasing the downward
pressure on money market interest rates with a view to further weakening the Swiss franc
exchange rate. With immediate effect, it aims to expand banks’ sight deposits at the SNB
further, from CHF 120 billion to CHF 200 billion. In order to achieve this new target level
as quickly as possible, it will continue to repurchase outstanding SNB Bills and to employ
foreign exchange swaps. Furthermore, the SNB reiterates that it will, if necessary, take
further measures against the strength of the Swiss franc

 

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[EmpireGlobalfx]

Asian stocks slide, Swiss franc falls

(Reuters) - European shares looked set to follow Asia lower on Thursday as investors in that region locked in profits on worries about faltering global demand, while the Swiss franc fell sharply on speculation the Swiss central bank was intervening in the forwards market.

Commodity and technology shares dragged the region's shares lower as investors skimmed off some of this week's gains amid lingering worries on the outlook for the U.S. economy and euro zone debt.

European stocks were set to track their Asian peers lower, with Germany's DAX seen opening as much as 1.7 percent lower by financial bookmakers.

Underscoring the cautious mood in Asia, S&P stock futures lost 0.82 percent.

With market sentiment still fragile, investors will closely watch a flurry of U.S. economic data later in the day including weekly jobless claims, existing home sales and business conditions in the Mid-Atlantic region.

Investors' demand for safe-havens has remained so strong that an announcement by the Swiss National Bank (SNB) on Wednesday that it would expand its liquidity policy failed to bring down the franc as markets had expected more radical measures such as an exchange rate peg.

"What drove the Swiss stronger is less speculation and more fear of things going wrong in the euro zone. Until that's fixed, it's very difficult to see how the SNB can win," said Rob Ryan, FX strategist at BNP Paribas in Singapore.

The SNB has been adding billions of francs in additional liquidity, pushing short-term interest rates down via the forwards. Its actions have pulled rates into negative territory.

On Thursday, traders cited talk that the SNB was at it again, flooding the market with liquidity.

The dollar traded at 0.7969 Swiss francs, still below a two-week high on Wednesday around 0.8011, while the euro stood at 1.1455 francs, down from Wednesday's peak around 1.1554.

Markets are a lot calmer compared with last week, when a crisis of confidence swept through global financial markets after Standard & Poor's cut the United States triple-A credit rating, pushing investors into safe havens such as gold and the Swiss franc.

John Woods, chief investment strategist at Citi in Hongkong, told Reuters Insider that a strong gap has begun to emerge in the market performance of export-oriented Asian countries such as Taiwan compared to markets that are driven by domestic demand like China or Indonesia.

"I suspect there will be an outperformance both in terms of equities and currency of the more inward, domestically oriented countries," he said.

GARDEN VARIETY UNCERTAINTY

"The mood has improved over the past week from sheer panic to a more garden-variety uncertainty about the future," said Bricklin Dwyer, economist at BNP Paribas.

Japan's Nikkei stock average slipped 1.2 percent, while stocks elsewhere in Asia as measured by MSCI fell 1.3 percent.

Taiwan's tech-heavy index lost 2 percent, making it the biggest loser in the region's major markets, tracking a fall in U.S. tech shares on Wednesday after Dell's disappointing sales outlook heightened worries about the economic growth outlook.

Meanwhile, gold traded at $1,790 an ounce, holding not far from a record high around $1,813.79 set last week. U.S. crude was a touch softer at $87.16 a barrel.

The dollar continued its gradual decline against the yen, slipping to 76.65 yen, well off a high above 80.00 set earlier this month after Japanese authorities intervened to weaken the yen.

Japanese Finance Minister Yoshihiko Noda said on Thursday he will closely watch market moves, when asked by reporters about the yen's strengthening against the dollar overnight.

"The Bank of Japan is caught between a rock and a hard place," said Jessica Hoversen, FX analyst at MF Global in New York. "Intervention did not work earlier this month, but investors also do not want to be caught on the wrong side."

 

[EmpireGlobalfx]

Bank of China says confident U.S. can deal with debt woes

(Reuters) - The head of Bank of China, the country's biggest foreign exchange bank, said on Friday he was concerned about the debt crisis in the United States but expected Washington to deal with the issue.

"We are a little concerned, but we are confident that the U.S. government should be able to solve this problem," said bank president Li Lihui, when asked whether he was concerned about the stability of the dollar and the U.S. debt situation.

Li told reporters at a business roundtable.

 

[EmpireGlobalfx]

Global stocks extend rout, gold soars

(Reuters) - A selloff in global stocks gathered pace on Friday, reflecting mounting concerns the U.S. economy is heading into another recession and as some European lenders faced a short-term funding crunch, highlighting the risk of a banking crisis.

Nervous investors fled to the safety of core government bonds, Swiss francs and gold, which hit a record high, with many seeking to unwind holdings of riskier assets such as stocks, commodities and higher-yielding currencies before the weekend.

European shares extended steep losses from Thursday, when they suffered their biggest daily slide in 2-1/2 years, with key indexes in Britain, France and Germany deep in the red.

U.S. stock index futures pointed to a sharply weaker open for equities on Wall Street, a day after the Nasdaq shed more than 5 percent and the S&P 500 tumbled 4.5 percent on rising recession fears.

Futures for the S&P 500, the Dow Jones and the Nasdaq 100 were down by between 1.4 and 1.5 percent.

A short selling ban imposed on financial stocks by some European stock markets last week has had little impact. Shares in Europe's biggest banks fell to their lowest in more than two years on funding fears, taking the weekly fall to near 10 percent and leaving the battered sector on course for a fourth straight week of declines.

"There has been a panic about European banks. European governments are guaranteeing European banks, but if the governments are not stable themselves, that means the banks aren't stable," said Lothario Mendel, chief investment officer at Octopus Investments, which manages $4 billion.

Worries about a European banking crisis kept the euro under pressure and it was last down 0.1 percent against the dollar at $1.4310.

The MSCI world equity index was down 1.4 percent. It has matched the losses in European stocks since the start of the month, with $1.4 trillion being wiped off valuations on Thursday and early on Friday -- equivalent to the size of the Spanish economy.

"At the moment the market is just looking for relative safe havens," said Mitsui Precious Metals analyst David Jollie. "You can see that in the selloffs across equity markets. The strength of gold is the other side of the coin from that."

Exane BNP Paribas, in a note, said a global recession was far from priced in by financial markets. Another global slump could see corporate earnings plunge 35 percent from peak to trough, implying a 50 percent cut to consensus earnings per share estimates.

The sharp decline in stock markets is expected to have an adverse impact on household wealth, further undermining consumer confidence and demand in coming months. Heightened uncertainty over growth could also see producers delaying decision-making, hitting global output.

Those concerns are likely to see investors cut exposure to stocks, metals and oil, and growth-linked currencies such as the Australian dollar in the coming days, unless the U.S. Federal Reserve signals more quantitative easing or European politicians take decisive actions to stem contagion risk from the euro zone debt crisis.

CRUNCH TIME

While investors fled stocks, spot gold hit a record high of $1,867.30 an ounce, putting it on track for the largest weekly gains since February 2009. The metal has rallied nearly 14 percent so far this month -- its best month since September 1999 -- benefiting from a deluge of safe-haven flows.

Oil prices fell, with Brent crude extending losses on renewed expectations of weak demand from the world's top oil consumer after a slew of lackluster U.S. data.

Brent fell as low as $105.06 a barrel, and has lost more than 9 percent this month, the worst slide since a near 15 percent drop in May 2010.

A string of data on Thursday revived concerns the United States could be heading for another recession, led by a sharp drop in factory activity in the U.S. Mid-Atlantic region to its lowest level since March 2009, which stunned investors.

An unexpected fall in existing U.S. home sales in July and a bigger-than-expected rise in new claims for jobless benefits in the latest week also added to a fresh bout of risk aversion.

Renewed fears that the euro zone debt crisis could engulf the region's financial system put pressure on short-term funding markets, forcing some European banks to pay higher rates for dollar loans and reviving memories of the dark days of late 2009 after the collapse of Lehman Brothers.

German Bund futures fell, but were still in sight of record highs as worries over a global slowdown and the euro zone debt crisis provided underlying support.

 

[EmpireGlobalfx]

Gold soars to record near $1,900 on econ woes

(Reuters) - Spot gold surged more than 1 percent to a third consecutive all-time high on Monday, as investors fled to the safety of bullion amid fears of another U.S. recession and the euro zone's debt crisis.

Spot gold struck a record at $1,888.90 an ounce, after staging its biggest weekly gain in 2- years last week. It traded at $1,888.76 by 2:40 a.m. EDT.

U.S. gold jumped more than 2 percent to an unprecedented $1,895.3.

A murky economic outlook given a persistent flow of weak macro data out of the United States and fears about the euro zone's fiscal health have propelled gold up by more than a quarter since July.

"We are not expecting anything supporting the U.S. economy or the macro data for at least a couple of months," said Tom Price, Global Commodity Analyst at UBS.

"Europe we regard as even weaker. We are thinking $1,900-$2,000 over a very short period of time is a likely target."

Investors are waiting for signs of further stimulus from the U.S. Federal Reserve when bankers gather in Jackson Hole, Wyoming, late this week, one year after Chairman Ben Bernanke launched a second round of quantitative easing to revive the economy.

Additional bond purchase by the Fed could raise the inflation outlook and further boost gold, but many view the chances of a third round of quantitative easing as limited and expect the Fed to take gradual measures to boost the economy.

Technical analysis suggested that gold could pierce through $1,900 over the day, said Reuters market analyst Wang Tao.

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to 1,290.762 tonnes by August 21, the highest in a week and half.

But speculators scaled back their bullish bets in U.S. gold futures and options for a second week last week, as bullion's rapid rally prompted some investors to liquidate positions, data showed.

"Key resistance in gold will be found at $1,946. However, the market may need an extraordinary event to take it above that level," said MF Global in a research note.

Other precious metals tracked gold's strength.

Spot silver rose as much as 2.5 percent to a three-month high of $43.93, extending a 10-percent rise last week -- its best week since December.

Spot platinum hit a three-year high of $1,890.25, on course for its 10th consecutive session of rise.

 

[EmpireGlobalfx]

Wall Street rallies after four weeks of losses

(Reuters) - Stocks surged more than 1 percent in early trading on Monday following four weeks of equity losses as stocks rebounded globally.

Equities have been pressured of late by growing concerns about the economy, given a string of weak economic data and the ongoing sovereign debt crisis in Europe.

European stocks gained 2.1 percent, while the MSCI world equity index rose 0.3 percent. .EU

"Recent data has been inconclusive about whether we're going into recession, so the market bounces back and forth daily based on mood swings," said Andrew Slimmon, managing director of global investment solutions at Morgan Stanley Smith Barney in Chicago.

"However, with interest rates being where they are, stocks are very cheap, and that's a very powerful and positive indicator."

The Dow Jones industrial average markets/index?symbol=us%21dji">.DJI jumped 176.15 points, or 1.63 percent, at 10,993.80. The Standard & Poor's 500 Index .SPX was up 19.92 points, or 1.77 percent, at 1,143.45. The Nasdaq Composite Index .IXIC advanced 47.32 points, or 2.02 percent, at 2,389.16.

The S&P has fallen more than 13 percent so far in August, with volatility driving the index down at least 4 percent for six days over the past two weeks. Some investors believe the speed and size of the drops suggested the market could be oversold. The CBOE Volatility index .VIX sank 5.2 percent but remained at elevated levels.

Investors looked ahead to a speech by U.S. Federal Reserve Chairman Ben Bernanke on Friday at the central bank's annual meeting in Jackson Hole, Wyoming.

Some investors hope the Fed will announce new stimulus after the central bank promised earlier this month to keep interest rates near zero for at least two more years, and said it would consider further steps to help growth.

"It's certainly possible that we could see more stimulus, but my worry is that as the week progresses, expectations will be built into the market that could lead to our having another decline if nothing is announced," Slimmon said.

U.S. crude futures rose 2.3 percent on a rebound in equities, and helped lift the S&P energy index .GSPE by 1.2 percent.

But Brent crude fell 1 percent, on expectations Libyan oil exports might resume after the civil war ends. Libyan rebels swept into the heart of Tripoli and met scattered resistance.

Tensions in the Middle East and a spike in oil prices contributed to equity weakness earlier this year.

About 45,000 striking Verizon Communications Inc (VZ.N) employees were set to go back to work on Tuesday after the company and unions agreed to resume bargaining. Shares of the Dow component rose 1.1 percent to $35.11.

 

[EmpireGlobalfx]

Inside the News: Rebound runs out of steam, Thomson Reuters: Reuters Insider

http://insider.thomsonreuters.com/l...yY2MtYmZhNy01YzhlMzViMTNhNzc=&start=0&end=240

 

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Analysis: Casting fears aside, China chases yuan ambitions

(Reuters) - To reach their goal of turning the yuan into a global currency, China's leaders are willing to push for full convertibility and eventually swing open the country's capital account.

That was the apparent message Chinese Vice Premier Li Keqiang delivered on his visit to Hong Kong last week, when he outlined a series of steps to boost the territory as a place where the yuan can trade with fewer constraints.

The measures, which include allowing foreign investors to buy up to 20 billion yuan ($3.1 billion) of mainland Chinese stocks and bonds, encourage foreign demand for yuan by giving investors more places to invest the currency.

To be sure, a freely convertible yuan isn't right around the corner -- China's leaders face an arduous journey that will involve numerous political and economic pitfalls.

"Things are all going as planned but an international yuan is four or five years away, at the earliest," said Mark Williams from Capital Economics in London. "To say right now how China's future currency regime would look is pure speculation at best."

China has already made significant progress in Hong Kong, its testing ground. The yuan is nearly convertible in that territory.

But, among other steps, China needs to first free its interest rate market, relax investment curbs in its equity and bond markets, and allow investment funds to leave and enter China with ease before the yuan can be made convertible.

Last week's announcements merely add up to another stride in China's long march toward the internationalization of the yuan, a goal that academics predict the country will reach by 2020.

"Li's visit sent a positive message. It set in stone the trend of yuan internationalization," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

Having a convertible yuan -- or one that can be readily bought or sold with few restrictions -- is a precondition for Beijing's long-sought goal of promoting the Chinese currency as one used for global trade and investment.

That would burnish China's rising economic prowess and could also help China kick its dollar addiction by staunching a rapid build-up in its dollar reserves.

By encouraging the free trade of the yuan in Hong Kong and creating new channels for that money to flow in and out of the mainland, Beijing is refining a template that could prove valuable once it decides to liberalize the currency more widely.

"It is an important step to develop the offshore yuan market Hong Kong," said Wang Jun, an economist at CCIEE, a government think-tank in Beijing. "The yuan can now go out of mainland China and also flow back."

NEW URGENCY

Even before Standard & Poor's triggered a rout in world financial markets this month by stripping the United States of its top-notch debt rating, Beijing had already made clear it intended to relax its grip on the yuan.

Under the five-year plan unveiled in March, Beijing aims to expand the use of the yuan in international markets and "gradually make the yuan convertible on the capital account."

Its latest actions, including this week's move to let merchants across China settle trades in yuan, shows Beijing is acting on its yuan ambitions as planned, analysts said.

But the unprecedented cut in the U.S. debt rating made the task more urgent, since China keeps an estimated 70 percent of its $3.2 trillion foreign exchange reserves in dollar assets.

In theory, letting the yuan rise sharply would slow the accumulation of foreign exchange reserves, but such a move would threaten the country's export sector.

Enabling China's customers to use yuan to pay for imports is naturally more attractive -- if an American company pays for its shipment of toys in yuan, that transaction wouldn't lead to more dollars being added to China's foreign exchange reserves.

To get to the point where the yuan can be a truly international currency, China wants to use affluent Hong Kong to create a deep and liquid offshore yuan market where investors can trade yuan freely and get decent returns, and use the territory as a test-bed for nurturing global yuan demand and easing capital controls, analysts say.

Beijing is making progress.

The yuan is already fully convertible in Hong Kong, where the pool of yuan deposits is estimated to hit 2-3 trillion yuan in coming years, paving the way for the yuan's full convertibility and setting the benchmark for China's reforms to make the onshore yuan rate more market-driven.

"They will first open up channel between the offshore and onshore yuan market, allow markets forces to find an equilibrium rate for the yuan on the offshore market, and then influence the onshore market," said Chen Xingdong, chief China economist at BNP Paribus in Beijing.

Until then, analysts say it is to early to judge if Beijing would allow a free yuan to emulate the Singapore dollar and trade in a managed float as that depends on how U.S. and European economies recover from their debt in coming years.

RISKS

Of course, risks abound.

A top concern is that Hong Kong's exploding offshore yuan market may complicate Beijing's fight against inflation by attracting waves of speculative hot money into China.

"Along with increased renminbi convertibility and the opening of the domestic financial market, cross-border capital inflows would increase, posing a challenge to China's financial stability," a group of Chinese officials and researchers said in book on the internationalization of the yuan.

Another worry is that the plan could backfire: rather than shrink, Beijing's foreign exchange reserves might actually balloon.

With few of China's trade partners holding enough yuan on hand to pay for goods, more merchants might use the yuan to pay for Chinese imports than exports, said Mark Williams from Capital Economics.

This leave China's central bank saddled with even more foreign currencies -- mostly dollars.

But China appears willing to try its luck.

"China is building this step by step," said Dong Tao, an economist at Credit Suisse on Hong Kong.

"If you get your currency internationalized, you don't have to keep buying foreign currencies and you will have less reserves."

 

[EmpireGlobalfx]

Gold falls $200 from Tuesday's record high

(Reuters) - Gold tumbled nearly 3 percent on Thursday to more than $200 below Tuesday's record highs, as investors cashed in scorching gains in the precious metal after the CME Group hiked gold trading margins for a second time this month.

Investment appetite for gold has cooled ahead of a widely awaited central bankers' meeting at Jackson Hole, Wyoming, as speculation grows over whether or not the Federal Reserve will signal a further round of U.S. monetary easing.

More quantitative easing -- or money printing -- from the Fed could significantly lift gold, but it could have further to correct if no additional action is signaled.

Spot gold was down 1.6 percent at $1,722.50 an ounce at 9:51 a.m. EDT in volatile trade, having earlier touched a low of $1,702.44.

Investors cashed in on gold's latest rally after the yellow metal surged nearly 20 percent in early August to record highs at $1,911.46 an ounce.

Spot prices fell 4.3 percent on Wednesday, their biggest one-day drop since December 2008, after U.S. durable goods data beat expectations. U.S. gold futures also posted their sharpest slide since 1980.

"Gold seemed to be running ahead of where equity markets were pointing to in terms of downside risks -- those markets were stable and gold kept wanting to push higher and higher," said Macquarie analyst Hayden Atkins. "Once we got an upside surprise in data, we saw some of those longs washed out."

Any recovery from these lows will be dependent on what happens in the next few days. "It's not really clear what the Fed's intentions are," said Atkins. "People are waiting and watching."

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, declined by more than 27 tonnes on Wednesday, their biggest one-day outflow since January 25. They have dropped nearly 60 tonnes this week, worth around $3.25 billion at today's prices.

Gold's losses were exacerbated late on Wednesday after the CME Group, the world's largest commodities exchange, raised margins on gold futures by about 27 percent, the biggest hike in more than 2-1/2 years and the second increase in a month.

But the metal's overall uptrend, which has seen it climb more than 20 percent this year, is still intact, analysts said.

"To be convinced you'd seen the top of the market you would have to see more signs of the issues that had lifted gold being resolved, such as the euro zone crisis, and U.S. growth coming back," said Mitsubishi analyst Matthew Turner.

Assets seen as cyclical or higher-risk than gold rose on Thursday as gold declined. European shares climbed after a raft of positive corporate results, oil prices firmed and the euro strengthened against the dollar.

U.S. gold futures for August delivery were down $29.40 an ounce at $1,727.90.

EXPECTATIONS SCALED BACK

All eyes are now on Jackson Hole. Fed chief Ben Bernanke's speech on Friday is being closely watched for hints of a fresh round of quantitative easing, which some have speculated could be necessary to kick-start growth.

Bernanke is likely to use his speech to acknowledge disappointment over the pace of the recovery and explain how the Fed will tackle sluggish growth.

"It is fair to say that gold should be one of the bigger beneficiaries of another round of quantitative easing; anticipation of such has been a driver of gold's strength recently given worries about financial stability and a deteriorating economic outlook," said UBS in a note.

"That yesterday's U.S. durable good data release surprised on the upside raised a red flag, along with equities trading again in positive territory, and climbing Treasury yields.

"As expectations of what Fed Chairman Bernanke can say at Jackson Hole tomorrow are scaled back, gold should be one of the assets that reacts most," it added. "But there is also a positive aspect to this, in that gold appears to have already discounted disappointment at Jackson Hole."

Among other precious metals, silver was down 0.1 percent at $39.64 an ounce, spot platinum was up 0.1 percent at $1,804.74 an ounce, and spot palladium rose 0.8 percent to $749.50 an ounce.

 

[EmpireGlobalfx]

How much higher can Apple shares go without Jobs?

(Reuters) - As far as investors can see, the outlook for Apple's shares remains as bright as an iPad screen despite the resignation of Steve Jobs, the company's legendary co-founder, as chief executive.

But many investors worry that the outlook for the medium- to long-term has become very cloudy.

Jobs exits as CEO at Apple's high, with revenues having steadily grown each quarter over recent years and analysts expecting a terrific performance in the next holiday season. Shares fell just 0.65 percent on Thursday, withstanding steep falls in the broad market.

But with many equating Jobs' vision with Apple's success, there is a fear that competition will finally gain on the company years down the road.

"In the long term, if Steve Jobs' health deteriorates or if he becomes more disengaged and does not lead the strategic aspect of the company, we will probably cut back our position by half," said Channing Smith, co-manager at Capital Advisors in Tulsa, Oklahoma. "Guys like Jobs don't come very often."

While Apple's product lineup should hold an edge over the competition in the next couple of years, it is the long-term outlook that has investors worried.

"The impact of Steve Jobs' absence will be limited at least for the next two years because all the products that come out during this period will have his finger prints all over," said James Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, Pennsylvania.

Even after passing the baton to Tim Cook, Apple's chief operating officer, Jobs will remain on investors' radar. Most still hope that from seat as the company's chairman he will provide guidance on key projects.

But the stock could take a dive if it becomes clear that he is no longer able to contribute to Apple's strategy.

"In the long-run, considering that he is an irreplaceable icon, ... is Tim Cook the man? We don't know," Meyer said.

"We're witnessing a business legend moving toward the exit door. Time only will tell if the company maintains the innovation and the creativity that he put in place there," said Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $16.3 billion in assets.

Wirtz, who like many other fund managers has Apple as one of the largest holdings in its portfolio of large-cap companies -- about 6 percent -- is sticking with his existing commitment to Apple shares. He is betting that Jobs' culture will continue to inspire the company, especially if in his new role as chairman he remains involved in major development projects.

And a number of investors said they'd be more likely to buy shares if the stock stumbled.

David Rolfe, chief investment officer at Wedgewood Partners, said he was buying on the dips for his new Riverpark/Wedgewood Fund.

"It just so happened that we got some cash inflows in the last 24 hours so we have been buying Apple in the fund. If the stock had been hit harder, we would have added to it in our separate accounts as well," he said.

Bank analysts overwhelmingly kept "buy" recommendations on the stock, with price targets ranging from $460 to $525 for the next 12 to 18 months, although many warned of increased volatility risk.

So far, selling Apple's stocks after each of Job's health scares has proved to be a bad investment decision. The stock has taken a hit right after the announcement of each of his three health-related absences, but quickly recovered.

In January 2009, the shares dropped almost 11 percent within the first week after Jobs announced his medical leave, but by end of that month they had more than recovered all their losses.

"This is the lesson for the last seven and a half years because Steve Jobs has been sick or recovering or in remission for all of it: Wall Street cares less about Steve Jobs' health than it does about Apple's health and Apple is healthier than its ever been," said Stephen Coleman, founder of Daedelus Capital LLC, which manages $4 million, 75 percent of which is in Apple.

 

[EmpireGlobalfx]

European shares rise in early trade

(Reuters) - European shares gained in early trade on Monday, tracking a late rally in Wall Street on Friday, as Federal Reserve chairman Ben Bernanke raised hopes for more stimulus for the economy at the U.S. central bank's September meeting.

At 0706 GMT (3:06 a.m. ET), the FTSEurofirst 300 markets/index?symbol=gb%21FTPP">.FTEU3 index of top European shares was up 0.7 percent at 925.81 points, after falling 0.7 percent on Friday. The index has lost more than 17 percent so far in 2011.

Trading volume was set to be lighter, with London markets closed for a holiday.

Heavyweight banks to gain included Credit Suisse (CSGN.VX), Societe Generale (SOGN.PA) and UBS (UBSN.VX), up between 2.9 percent and 3.4 percent.

"It's one of these days when you go back to the underlying valuations of the companies - and say it looks good. We have oversold this market. It's a bounceback from lower prices, not based on anything fundamental. Bernanke has pushed it back to the politicians," Justin Urquhart Stewart, at Seven Investment Management, said.

 

[EmpireGlobalfx]

Global stocks jump; dollar dips on stimulus hopes

(Reuters) - Global stocks jumped almost one percent on Monday while the dollar struggled after Federal Reserve Chairman Ben Bernanke left the door open for further action to stimulate the U.S. economy and fight unemployment.

World shares .MIWD00000PUS rose 0.9 percent, with Asian markets tracking a strong bounce for Wall Street, which closed up 1 percent following Bernanke's keynote speech in Jackson Hole on Friday.

IMF chief Christine Lagarde also added to market pressure for policymakers to do more to prop up a flagging global economy at the meeting of central bankers, telling officials they must "act now" to save the recovery.

European stocks finance/markets/index?symbol=gb%21FTPP">.FTEU3 also gained, up 0.7 percent, and U.S. stock futures rose around 1 percent after Hurricane Irene, downgraded to tropical storm status, spared the nation's financial center the worst.

London markets are closed on Monday for a holiday.

Bernanke gave no details of further action to boost the U.S. recovery but said the central bank's policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to investors of a move then.

Analysts said a bad run of data before the Fed's meeting may prove crucial.

"The change to a two-day meeting to 'allow a fuller discussion' is something that will likely keep market expectations elevated about the possibility of further monetary policy stimulus," Barclays Capital economist Michael Gapen said in a note to clients.

"Mr Bernanke said the Fed is in a data-dependent mode and there will be many discussions at the two-day FOMC in September."

BARRIERS

Both the dollar and euro gained around 1 percent against the Swiss franc, in which investors are now facing negative rates of return following the Swiss National Bank's moves to flood the market with liquidity.

But the possibility of more monetary stimulus in the U.S. kept the dollar broadly under pressure, down 0.3 percent .DXY against a trade-weighted basket of currencies.

Against the yen, the greenback traded at 76.62 yen, recoiling from a recent high around 77.69.

"The fact that Bernanke did not talk about inflation risk has helped equity markets and put pressure on the dollar," said Manuel Oliveri, currency strategist at UBS in Zurich.

"But there is not much more potential for the dollar to sell-off with markets now focusing on FOMC minutes and the U.S. employment report this week," he said.

Debt troubles and political issues on both sides of the Atlantic make monetary policy the only viable short-to-medium-term policy response to slowing growth, said Viktor Shvets, regional strategist at Samsung Securities in Hong Kong.

But following through with another round of bond buying will be harder this time around, some analysts say, citing rising core inflation in the U.S. and a split regarding policy within the Fed as obstacles.

"He (Bernanke) has a much, much harder decision this time," said Jim Walker, founder of Asianomics and former chief economist at CLSA Asia-Pacific Markets, in a Reuters television interview.

"What he's got to do is convince the dissenting voices in the Fed and there are now three of them that economic growth is so bad that it is time to use even more extraordinary measures," said Walker.

Japan's Nikkei .N225 closed up 0.6 percent on subdued volumes. South Korea's KOSPI .KS11, the Asian market considered to be the most geared to a global economic recovery, jumped more than 3 percent, then cooled to be up 2.8 percent.

MSCI Asia Pacific ex-Japan .MIAPJ0000PUS rose 2.1 percent. It is down 11 percent so far this month in its worst performance since October 2008, reflecting the scale of concern over global growth and its impact on the region's energy and commodity stocks.

Brent crude traded just above $111 on Monday, dipping as oil refiners and terminals along the U.S. east coast weathered the worst of tropical storm Irene, easing fears of fuel supply disruptions.

NYMEX crude for October delivery was up 0.2 percent.

 

[EmpireGlobalfx]

Bank of America to sell China bank stake for $8.3 billion

(Reuters) - Bank of America Corp is selling about half its stake in China Construction Bank for $8.3 billion, in its latest effort to shed assets and boost capital.

A group of investors is buying 13.1 billion CCB shares from Bank of America, with the deal expected to close in the third quarter. The U.S. bank declined to name the investors but two sources said Singapore state fund Temasek was among the buyers.

Bank of America needs to boost capital by some $50 billion in the coming years to meet new global rules, according to multiple analyst estimates.

CCB is the second-largest bank by market value in the world, and Bank of America's ties with the Chinese bank are seen as an important source of future growth, particularly as economic growth in the United States is likely to be tepid for now.

Bank of America's willingness to sell part of its CCB investment as soon as it was contractually able to shows how far it must go to meet new capital requirements, analysts said.

"Bank of America's decision to sell that stake is wrong strategically in the long run, but they need money," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.

The bank has said it can raise the capital it needs through earnings and selling off assets, but a number of investors have expressed concern that the bank will need to issue more common shares.

Those dilution concerns helped push the bank's shares this month to their lowest level in two-and-a-half years. Investors are also concerned about the bank's potential losses from mortgages and related litigation. Bank of America's 2008 purchase of Countrywide has brought it billions of dollars of losses and legal payouts.

Bank of America shares gained 8.1 percent to close at $8.39 on Monday.

A $5 billion investment from Warren Buffett's Berkshire Hathaway last week stopped the fall in Bank of America's shares.

For CCB, analysts said the sale helps soothe investor worries about when a sale might take place.

"This removes an uncertainty that's been hanging on China Construction Bank for a while now," said Ivan Li, deputy head of Hong Kong research at Kim Eng Securities.

In the CCB deal, Bank of America sold each share for HK$4.93, an 11 percent discount to the Chinese bank's most recent closing price of HK$5.55.

As lock-up provisions expire on a number of Chinese financial stocks, big investors will have the contractual right to start selling shares. Fears of those transactions have weighed on the sector, along with concerns about the Chinese economy's growth trajectory.

A START

Bank of America will record a $3.3 billion gain in the third quarter as a result of the sale, and a $3.5 billion increase to its core capital under current rules, a spokesman said.

Under proposed Basel III rules, the sale will generate an $8.3 billion gain for Bank of America.

The deal could add 0.3 percent to the bank's core capital until current industry rules and 0.2 percent under proposed Basel III rules, wrote David George, Robert W. Baird & Co bank analyst, in a research note to clients.

For Basel III, the bank's tier one capital levels after the deal are about 5.7 percent, while the bank is targeting somewhere around 6.75 percent or 7 percent by 2013, George said.

In recent weeks, Bank of America has also agreed to sell an $8.6 billion Canadian credit card portfolio to TD Bank Group and is in talks to sell $1 billion of real estate assets to Blackstone Group.

In the last six quarters, Bank of America has generated some $30 billion of proceeds from asset sales.

Fears about the bank's ability to meet its capital requirement have cut the bank's stock price by a third since the beginning of August, including a 20 pct plunge on August 8.

TAPPING INTO GROWTH IN 2005

Temasek has a history of buying CCB shares. In November, it bought Bank of America's entitlement to buy 1.79 billion CCB shares in the Chinese bank's rights offering.

The Singapore fund has another link to Bank of America -- Greg Curl, the U.S. bank's former chief risk officer, is now president, overseeing the financial services sector for the fund.

A Temasek spokesman declined to comment.

Before CCB's IPO in 2005, Bank of America paid $3 billion for a 9.9 percent stake in the Chinese bank.

At the time, then Bank of America Chief Executive Kenneth Lewis said the partnership was designed to give the bank increased access to roughly 1.3 billion Chinese consumers, while CCB would benefit from Bank of America's U.S. retail banking experience.

The U.S. bank increased its holdings in following years to 25.6 billion shares, including 23.6 billion that came out of lock-up on August 29. After the share sale, Bank of America will still have about 12.1 billion CCB shares, worth nearly $9 billion.

Last week, CCB President Zhang Jianguo told Reuters the two companies were in talks to extend their current cooperation agreement for another five years.