Shares, euro edge up

2012-09-06 08:23

Singapore - Stocks edged higher on Thursday and the euro held on to the previous session's gains on hopes that the European Central Bank will unveil new tactics to curb surging borrowing costs in indebted eurozone states.

The single currency jumped more than 1 cent on Wednesday to a high of $1.2625 after a string of leaks from eurozone officials raised expectations that the ECB will announce a bolder bond intervention plan after Thursday's policy meeting.

"This meeting is absolutely crucial, because expectations are extremely high. If the ECB does not deliver, we will get into another bad patch," said Gilles Moec, senior European economist at Deutsche Bank.

Euro STOXX 50 index futures rose 0.2%, pointing to a firmer start to trading, while financial spread betters in London called the FTSE 100 to open up around 0.3%.

The euro firmed a touch to about $1.2607, while the dollar was flat against a basket of major currencies.

Asian equity markets pared earlier gains, with MSCI's broadest index of Asia Pacific shares outside Japan rising 0.2%, while Japan's Nikkei closed flat.

Australia's stock market led regional gains, rising around 0.7% after a jump in copper prices in the previous session boosted mining heavyweights Rio Tinto and BHP Billiton.

US stocks had largely ignored the European news on Wednesday, with the Dow Jones Industrial Average gaining 0.1% but the broader S&P 500 easing 0.1%, hurt by a profit warning from economic bellwether FedEx.

"While FedEx is only one company, it's one whose warning is indicative of the global economic slowdown we're dealing with," said Leo Grohowski, chief information officer at BNY Mellon Wealth Management in New York.

But S&P index futures traded in Asia rose 0.3% on Thursday, suggesting modest gains on Wall Street later as long as ECB President Mario Draghi does not disappoint investors at his 12:30 GMT news conference.

ECB faces crucial moment

Renewed ECB intervention in the eurozone's bond markets is seen by most market economists as crucial for buying governments time to come up with a longer-term response to the bloc's debt crisis.

The ECB said in August it would start buying Spanish and Italian government bonds again to ease pressure on those countries' borrowing costs, but only if they first sought help from the eurozone's rescue fund and met strict conditions.

Further details will be revealed later on Thursday, with sources telling Reuters on Wednesday the central bank was ready to waive seniority status - the right to be paid back first - on government bonds it buys under a new programme.

That should encourage private investors wary of being pushed down the creditor pecking order by central bank interventions.

Some reports suggested the ECB was ready to announce "unlimited" bond purchases - meaning with no cap on the amount it was prepared to spend - though sources told Reuters that was unlikely as the central bank wanted to leave room for manoeuvre.

"I'm not sure if the ECB measures alone can boost the euro further from here," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. "What's ultimately important is fiscal convergence."

Sovereign bond markets welcomed the reports on Wednesday. Spanish and Italian 10-year yields fell 20 basis points and 16bp respectively to 6.42% and 5.51%.

Yields on US Treasuries, in turn, nudged higher in Asian trading on Thursday, with the benchmark 10-year note edging up around 1 basis point to 1.601%.

Oil was boosted by expectations that ECB action will support asset prices, with US crude climbing 0.6% to just shy of $96 a barrel and Brent crude gaining 0.4% to around $113.50.

"Investors are pricing in the ECB meeting tonight," said Natalie Rampono, a commodity strategist at ANZ Bank.

"A positive response in both the ECB meeting and US payroll data due later will be supportive of oil prices. If we see disappointment in the data or the meeting, however, there will be the risk of a sell-off."

Gold edged back near its highest in almost six months, gaining around 0.3% to about $1 698 an ounce.

Gold, typically a safe-haven asset, has often tracked the fortunes of the euro and stocks, with investors selling the metal to cover losses in other markets as the eurozone debt crisis caused turbulence in financial markets.

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