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Global stocks and dollar fall on U.S. economic concerns

Reuters | March 16, 2007
Lincoln Feast

Worries about the health of the U.S. economy sparked a renewed bout of selling on global share markets on Friday and pushed the dollar to three-month lows.

Euro zone government bonds edged higher in early trade as concerns about the potential spread of problems in the riskier end of the U.S. lending market persisted and after data on Thursday showed sluggish manufacturing activity in the U.S. Northeast.

By 0934 GMT, Europe's FTSEurofirst 300 was down 0.4 percent at 1,450 points, giving up some of the previous session's gains and on track for a weekly decline of close to 3 percent.

"For investors with a long-term commitment to equity markets, the volatility offers a buying opportunity," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities.

"It did so last summer and we reckon it is doing so again, through we doubt that this bout of volatility has run its course."

Banks, miners and energy stocks were among the biggest negative influence while, as earlier in the week, merger and acquisition talk and activity drove the biggest gains.

Consumer goods giant Unilever rose 3 percent on talk the company was the latest target for private equity buyers.

Shares in Asia were also weaker, with Tokyo's Nikkei falling 0.7 percent as banking shares fell, while MSCI's index of stocks elsewhere in Asia fared better, down just a fraction of a point.

Emerging market stocks and bond spreads also fell less than might be expected in an environment of risk aversion, while on currency markets, analysts pinned the move on concerns about the dollar.

"This is a definite dollar move as opposed to carry trade unwinding, equity market volatility or subprime mortgage volatility," said Jeremy Hodges, Head of FX Sales at Lloyds TSB Financial Markets.

"It does look like there is still growth in other parts of the world and we're starting to see growth in Europe, but it looks like the U.S. is struggling."

The euro rose to a three-month high against the dollar at $1.3324, up two thirds of a percent on the day, while the dollar was down a similar amount against the yen at 116.70. Against the Swiss franc, the dollar was down almost 1 percent at 1.2056 francs.

The yen has rallied strongly since the end of February as stock market falls and falling appetite for risk have prompted traders to unwind bets financed by borrowing cheap yen and buying higher yielding assets.

Japan's top financial diplomat said recent unwinding of carry trades had been orderly and posed no threat to markets.

"Even though there has been some signs of unwinding, it does not threaten the markets and the markets are digesting it. In general, the market has been functioning very well," Hiroshi Watanabe, Japan's vice finance minister for international affairs told Reuters on the sidelines of an economic conference.

Euro zone government bonds ticked higher on worries about the U.S. lending market and ahead of key U.S. consumer inflation data due later in the day.

The June Bund future was up 10 ticks at 116.40, while the yield on 10-year Bunds was down 8 ticks at 3.897 percent.

The U.S. economic concerns were also felt in the oil market, with U.S. light crude extending losses below $58 a barrel. Metals remained firm, with copper building on recent gains and nickel surging to another record high of $48,500 a ton.

"Nickel is in a world of its own," BaseMetals.com said in a daily market report.

"Although there seems no stopping the run-away price, something will stop it. And when it does, nickel will correct heavily. Indeed at these prices demand destruction must be significant and that is likely to free up metal for other users."



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