Saturday, January 8, 2011

GLOBAL MARKETS-US jobs report can't lift stocks; euro suffers

NEW YORK: The euro fell to a nearly four-month low against the dollar on Friday, Jan 7 after the United States reported a surprisingly strong decline in its unemployment rate, but disappointment over the number of jobs added drove Treasuries higher and weighed on stocks.

Worries about sovereign debt in the euro zone also weighed on the single currency and European equity markets ahead of debt auctions next week.

Oil prices fell, closing the first week of the new year with the biggest weekly percentage loss in nearly five months, stung by the stronger dollar.

U.S. non-farm payrolls increased by 103,000 in December, the government said, below economists' expectations for 175,000. The jobless rate, however, fell to 9.4 percent, the lowest rate in more than 1-1/2 years, and the United States revised up the payroll numbers for October and November.

"You can't ignore the fact that, regardless of a disappointing payrolls outcome, U.S. growth is still looking better than Europe, and the euro sovereign stress is still there," said Richard Franulovich, senior currency strategist at Westpac in New York.

The euro zone debt crisis "will surface as an investor concern this quarter," said Colin McLean, managing director at SVM Asset Management in Edinburgh. "Portugal will have to access the stability fund."

On Wall Street, stocks were led lower by bank shares after a court ruling voided some foreclosures, the latest court decision on the validity of foreclosures conducted without full documentation. The ruling may set a dangerous precedent for the sector and slow the recovery in housing if the processing of delinquent loans keeps hitting snags.

The Dow Jones industrial average fell 22.55 points, or 0.19 percent, to 11,674.76. The Standard & Poor's 500 Index slipped 2.35 points, or 0.18 percent, to 1,271.50 and the Nasdaq Composite Index declined 6.72 points, or 0.25 percent, to 2,703.17.

Shares of Wells Fargo & Co., a defendant in the foreclosure case in the Massachusetts ruling, fell 2 percent to $31.50.

Europe's FTSEurofirst 300 dropped 0.25 percent, with selling accelerating after the U.S. data. Banks were among the top decliners

World stocks measured by MSCI All-Country World Index edged down 0.4 percent in a third straight decline. Japan's Nikkei average edged up 0.1 percent to an eight-month high.

The euro closed out the week with its worst weekly loss since mid-August, down 3.3 percent against the dollar.

"Worries about the restructuring among banks being built in is starting to affect the creditworthiness of these peripheral countries," said David Woo, head of global rates and currencies research at Bank of America Merrill Lynch in New York.

The dollar was buoyed by revisions in the U.S. jobs report that seemed to underscore that a broader economic recovery was intact. This compares with lingering skepticism over the ability of some euro zone nations to calm creditors, and mixed data from regional stalwart Germany.

The U.S. dollar climbed 0.37 percent against a basket of major currencies.

The euro slid 0.72 percent to $1.2908. Against the Japanese yen, the dollar fell 0.40 percent at 83.01.

Germany's trade surplus narrowed in November as imports gained more than expected, a sign of rising domestic demand in the face of other data showing declines in retail sales and industrial output.

Earlier, investors sold bonds of the most indebted euro zone governments before a series of issues next week. A European Union proposal that could force those who lend to banks to bear big losses if they fail also helped knock the single currency lower across the board.

Portugal, widely seen as the next euro zone state that could need a bailout after Greece and Ireland, will lead debt auctions from European nations next week. Talk that the Swiss National Bank excluded Portugal bonds from bank loan collateral weighed on the euro even after the central bank's denial.

Risk premiums on Portugal's 10-year government bonds over benchmark German Bunds rose 19 basis points to 4.40 percentage points, while those on 10-year Spanish bonds over Bunds widened. The five-year cost of insuring Portugal's debt against default rose by 15 basis points to 540 basis points.

"The rising yields at debt auctions in the euro zone will continue to spook investors for a while, and it's best to stay away from peripheral stocks such as Spanish and Portuguese banks until mid-year, when the crisis should ease," said Arnaud Scarpaci, fund manager at Agilis Gestion in Paris.

Many analysts said markets had become so upbeat on the payrolls that there was room for disappointment. Some pointed to a note of caution from new U.S. claims for jobless benefits, which rose more than expected last week.

U.S. Treasury debt gained after the employment report fanned hopes the U.S. Federal Reserve will stick to an ultra-easy monetary policy.

Benchmark 10-year Treasury note yields declined 0.08 percentage point to 3.32 percent, erasing some of the increase that followed signs of economic recovery since October.

In commodities, copper fell for a fourth consecutive session on Friday after the U.S. jobs data capped the growth outlooks that have been behind the metal's rise to record highs earlier this month.

Prices of the industrial metal pulled further away from record peaks at $9,754 per tonne in London and $4.4980 per pound in New York, falling to their lowest in two weeks.

U.S. light sweet crude oil settled down 35 cents, or 0.35 percent, to $88.03 per barrel, and gold fell $1.71, or 0.12 percent, to $1369.20. - Reuters

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