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GLOBAL MARKETS-Euro rises on ECB policy talk, stocks slip

by on July 25, 2012 3:08 pm BST
 

Wed Jul 25, 2012 11:08am EDT

* Euro gains on ECB official comments

* U.S. data keeps equities under pressure

* Weak UK GDP and German Ifo data add to growth worries

* Concerns over Spain and Greece persist

By Rodrigo Campos

NEW YORK, July 25 (Reuters) – The euro rose on Wednesday as
tools to prevent the euro zone debt crisis from spreading
further were put on the table by a European Central Bank
official, but weak European and U.S. data hurt stocks.

The S&P 500 turned negative in early trading after data
showed a large drop in new home sales, but the Dow jumped
boosted by Caterpillar and Boeing as both
manufacturers lifted their 2012 forecasts.

Apple’s rare revenue miss and the stock’s 4.5
percent drop weighed on the tech-heavy Nasdaq Composite index.

ECB Governing Council member Ewald Nowotny said there were
arguments for giving Europe’s new permanent rescue fund a
banking license, enabling it to borrow unlimited central bank
money and boosting its capacity to prevent the crisis from
spreading even more.

Analysts said the market may have put too much emphasis on
the comments, given other ECB officials’ opposition to the idea.
Investors would likely sell into the euro’s rally, the analysts
said.

“The market is desperate and jumping on anything that even
looks remotely positive,” said Geoff Kendrick, currency
strategist at Nomura.

The euro rose 0.6 percent to $1.2132, although the
outlook remains weak and it is only just above a two-year low of
$1.2042 hit Tuesday.

The single currency pared some of its initial gains against
the dollar after data showed new U.S. single-family home sales
in June fell by the most in more than a year and prices resumed
their downward trend.

U.S. equities also pared slight gains posted at the open.

“The backdrop shows housing is still far from healed, with
the last few months showing decelerating jobs growth,” said Tom
Porcelli, chief U.S. economist at RBC Capital Markets in New
York.

The Dow Jones industrial average gained 68.87 points,
or 0.55 percent, to 12,686.19. The S&P 500 Index dipped
0.97 point, or 0.07 percent, to 1,337.34. The Nasdaq Composite
fell 12.70 points, or 0.44 percent, to 2,850.29.

The pan-European FTSEurofirst 300 index was flat at
1,018.59 points at 1408 GMT, having traded as high as 1,023.74
points in volatile morning trade.

The MSCI world equity index edged 0.1
percent lower and has fallen 2.8 percent this week as concerns
about the impact of Europe’s problems on growth spread across
the world.

Support from central banks has been expected by markets for
weeks as economic data sags globally. A weak reading on
Britain’s gross domestic product and a German business sentiment
survey added to worries about slowing growth.

Despite a sluggish recovery and some analysts suggesting the
U.S. economy may already be in recession, the S&P 500 hit its
highest level in 2-1/2 months last week.

Top Fed officials recently spelled out what measures they
might take to boost growth and hiring.

ECONOMIC GLOOM DARKENS

The gains in the euro came despite the weak economic data
from Germany and Britain, which reinforced the view that even
the European Union’s biggest economies were being damaged by the
debt crisis.

German business sentiment dropped in July for the third
straight month to its lowest level in over two years, according
to the latest survey by the Munich-based Ifo think tank.

Greece was also back in the headlines with inspectors from
the EU, ECB and International Monetary Fund in Athens to decide
whether to keep it hooked up to a 130 billion euro lifeline or
let it face default.

Three EU officials have said the team was likely to conclude
Greece cannot repay what it owes, making a further debt
restructuring necessary, but no decision is expected until at
least September.

The benchmark 10-year U.S. Treasury note was down 3/32, with
the yield at 1.4008 percent after earlier rising as high as 1.44
percent. The yield hit an all-time low on Tuesday.