Wednesday, February 9, 2011

GLOBAL MARKETS-World stocks subdued, China hike weighs on oil

NEW YORK: World stocks and industrial metals managed to claw their way slightly higher while oil prices fell in volatile trade on Tuesday, Feb 8 after China raised interest rates for the second time in six weeks, spurring worries that global growth will be crimped.

As commodities took the initial hit from China's move, the commodity-sensitive Australian dollar fell and bolstered the euro, which rallied broadly on demand from Asian central banks. The U.S. dollar and Swiss franc eased across the board as investors ventured away from safe-haven currencies after tensions in Egypt eased.

In an intensifying bid to tame high inflation, China said it would raise its benchmark one-year deposit rate by 25 basis points to 3 percent.

China is the world's biggest consumer of copper, an industrial metal often viewed as a barometer for economic conditions, and the world's second-biggest consumer of energy.

Copper, mirrored by tin, tumbled on the news initially but bounced to a slightly firmer finish with demand remaining robust for this year. The metal has been reaching successive record highs since the beginning of February. [ID:nLDE71718U]

The impact from China's rate hike on other asset classes was limited.

"The rate hike is important, but it isn't at a critical level where it becomes troublesome," said Michael Mullaney, a portfolio manager who helps manage $9.5 billion at Fiduciary Trust Co in Boston.

Global stocks coasted, with major averages lingering near 2-1/2-year highs. Wall Street rose on the thinnest volume this year as gains in consumer discretionary stocks offset losses in energy shares and lifted the Dow to the seventh consecutive day of gains.

Asian markets were set for a higher open as the front month futures contract for the Nikkei 225 stock index <0#NK:> trading in Chicago rose 30 points, or 0.28 percent, to 10,695. Asian markets will reopen on Wednesday after week-long Lunar New Year holidays.

China's reminder about inflationary worries around the world supported gold, which rose and pushed through resistance levels. At the U.S. market close, however, spot gold trimmed its gains, edging down 0.1 percent, or 96 cents, to $1362.60.

U.S. crude oil fell 38 cents, or 0.43 percent, to $87.10 per barrel. In addition to the Chinese rate hike, expectations that weekly oil inventory reports from industry and government will show crude stockpiles rose last week weighed on prices.

The U.S. dollar fell 0.09 percent against a basket of major trading-partner currencies <.DXY> and edged down 0.02 percent against the Japanese yen .

The euro held little-changed from the previous session close at $1.3631 after climbing as high as $1.3685 earlier in the day.


After weeks of growth in world stock markets, investors remained focused on corporate earnings and growing merger activity, tempering the sting from the Chinese rate hike.

U.S. stocks rose after McDonald's Corp , a Dow component and a barometer for consumer spending, reported surprisingly better-than-expected sales and boosted consumer discretionary stocks. [ID:nN08242483]

At the close, the Dow Jones industrial average <.DJI> rose 71.52 points, or 0.59 percent, to 12,233.15. The Standard & Poor's 500 Index <.SPX> gained 5.52 points, or 0.42 percent, to 1,324.57. The Nasdaq Composite Index <.IXIC> added 13.06 points, or 0.47 percent, to 2,797.05.

The MSCI world equity index <.MIWD00000PUS> rose 0.4 percent, hovering at the highest level since August 2008. The Thomson Reuters global stock index <.TRXFLDGLPU> gained 0.3 percent, while emerging stocks <.MSCIEF> were little changed, down 0.1 percent.

Europe's FTSEurofirst 300 index <.FTEU3> closed 0.1 percent lower, retreating slightly from 29-month highs hit on Monday, Mining stocks fell, with Kazakhmys , Lonmin and Vedanta all down 1 percent.

Worries of growing global inflation also pressured U.S. Treasury debt prices, which weakened for a seventh day in a row. Prices also sagged in the wake of a soft three-year note sale as traders bet that government debt yields may need to rise further to adapt to a strengthening economy.

With yields at their highest levels since last spring, the benchmark 10-year note fell 24/32 to yield 3.74 percent, near a 4 percent resistance level. The 2-year Treasury note shed 6/32, yielding 0.85 percent. - Reuters

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