Mon Jul 30, 2012 3:37pm EDT
* European shares rally as ECB, Fed set to meet this week
* Euro slides on worries stimulus measures may disappoint
* U.S. stocks slip; European stocks close higher
* Oil ends lower; gold edges down
By Caroline Valetkevitch
NEW YORK, July 30 (Reuters) – Global stocks rose on Monday
on expectations that the European Central Bank and the U.S.
Federal Reserve will take measures to support struggling
economies when they meet this week, but the euro slid against
the dollar on worries that the central banks will act less
aggressively than hoped.
There are strong expectations that the ECB will act
forcefully to rein in the euro zone’s debt crisis when it meets
on Thursday, after ECB President Mario Draghi’s comments last
week that the central bank would do whatever it takes to
preserve the euro.
But there is more skepticism about what the Fed will do at
its two-day meeting that begins on Tuesday. Many economists
believe the U.S. central bank will wait until September to
provide more stimulus to a faltering U.S. economic recovery.
“Certainly everyone thinks that Europe is going to come out
with this big bazooka, and they also think the Fed will launch,
so therefore the market is going to stay up here,” said Ken
Polcari, managing director at ICAP Equities in New York.
U.S. Treasury Secretary Timothy Geithner and Germany’s
Finance Minister Wolfgang Schaeuble, in a joint statement issued
after their meeting on Monday, emphasized “the need for
policymakers to adopt and implement all reform steps required to
deal with the financial crisis and crisis of confidence.”
The euro fell against the dollar for the first time in four
days on worries that the ECB may disappoint investors hoping for
more measures to contain the debt crisis.
The euro lost 0.5 percent to $1.2258, retreating from
a three-week high of $1.2390 hit on Friday.
“Traders were in a ‘show me’ mode, with enthusiasm fading
over last week’s comments by both Mario Draghi and Angela Merkel
in support of the euro,” said Boris Schlossberg, managing
director of FX strategy at BK Asset Management in New York.
Speculation has grown that the Fed will do more to bolster
the recovery after data on Friday showed U.S. second-quarter
gross domestic product expanded at a 1.5 percent annual rate,
the weakest pace since the third quarter of 2011.
Bank of America-Merrill Lynch analysts said in a research
note that the Fed should extend its forward guidance language on
maintaining ultra-low rates to “at least late 2015” at this
week’s meeting. They said that while there is a moderate chance
that the Fed will launch additional quantitative easing, it is
more likely the Fed will announce a third round of asset
purchases in September.
The MSCI world equity index rose 0.4
percent, extending gains for a third straight day.
The FTSEurofirst 300 advanced 1.6 percent to
1,072.97 points, its highest close since April 2, having soared
more than 5 percent in three days.
U.S. STOCKS RETREAT, BONDS RISE
But Wall Street slipped after its best two-day run this
The Dow Jones industrial average was down just 4.47
points, or 0.03 percent, at 13,073.19. The Standard & Poor’s 500
Index was down just 0.65 of a point, or 0.05 percent, at
1,385.32. The Nasdaq Composite Index was down 11.68
points, or 0.39 percent, at 2,946.40.
Brent crude for September delivery settled at
$106.20 a barrel, down 27 cents, while NYMEX crude for September
delivery settled at $89.78 a barrel, down 35 cents.
Spot gold declined 0.3 percent to $1,618.09 an ounce.
In the U.S. bond market, the benchmark 10-year U.S. Treasury
note rose 15/32, with the yield at 1.504 percent.
Action by the central banks could favor riskier assets, to
the detriment of safe-haven Treasuries. But they could also
favor riskier assets and Treasuries simultaneously, especially
if they include more bond purchases by the Fed in the open
Morgan Stanley Smith Barney “expects action from the Fed and
the ECB this week,” said Charles Reinhard, managing director and
global investment strategist at Morgan Stanley Smith Barney in
“With Draghi saying the ECB will do what it takes, we
presume they will be purchasing bonds,” he said. “In doing so,
the ECB will be catching up to the curve after previously being
behind the curve.”
Inflows into safe-haven German government bonds slowed,
keeping prices close to three-week lows.
Germany’s Bundesbank is opposed to a resumption of the ECB’s
secondary market bond buying as well as granting the euro zone
rescue funds a banking license, which would give them more
firepower to tackle the debt crisis.