GLOBAL MARKETS-Shares hit 20-month high as Japan promises open-ended easing

Tue Jan 22, 2013 6:15am EST

* BOJ makes open-ended commitment to buy assets from 2014
    * MSCI world share index hits new 20-month high
    * Yen falls briefly after BOJ but then reverses course
    * Oil and gold edge higher
    * European shares hit by German bank concerns

    By Marc Jones
    LONDON, Jan 22 (Reuters) - World shares hit a new 20-month
high on Tuesday after Japan launched it boldest attempt yet to
lift its stagnant economy, though the gains were cropped by a
flare-up of concerns about Germany's banks.
    The Bank of Japan, which has been under intense political
pressure to overcome deflation and generate growth, hiked its
inflation target to 2 percent and said that from 2014 it would
adopt an open-ended commitment to buy assets to ease monetary
conditions. 
    The move surprised markets, which had expected another
incremental increase in its 101 trillion yen ($1.12 trillion)
asset-buying and lending programme, though the delay before the
easing measures kick in dulled the impact and saw the yen edge
higher against the dollar.
    European shares, which have been testing two-year highs in
recent days, experienced a turbulent morning as markets latched
on to a report that German regulators were simulating a
separation of some banks' operations, and on rumours - later
denied - that Deutsche Bank was preparing a profit
warning.
    Frankfurt's DAX fell as much as 1.4 percent but had
clawed back half of the losses by 1100 GMT. London's FTSE 100
, Paris's CAC-40 and Madrid's IBEX were
between flat and down 0.3 percent, leaving the FTSEurofirst 300
 down 0.2 percent on the day.
    A better-than-expected reading from the German ZEW investor
sentiment index helped the recovery. It rose sharply for a
second consecutive month in January in a sign that the euro zone
crisis is no longer hitting Europe's largest economy as hard as
in late 2012. 
    "A slight improvement was expected, but the actual recovery
was significantly better," said Stefan Kipar, an economist at
Bayern LB.
    "All in all, the indicators are showing that financial
analysts increasingly expect a recovery of the German economy in
the spring."
    Equity markets, particularly in Japan, had risen strongly in
the run-up to Tuesday's BOJ meeting, and the confirmation of the
central bank's plans was enough to lift the MSCI world index
 0.15 percent to a fresh 20-month high of 352.54.
    Brent crude rose 0.3 percent to $112.07 a barrel,
and gold was up 0.2 percent as the BOJ's easing action
added to recent positive data from the United States and China,
while growing confidence in the strength of China's economic
recovery pushed copper up 0.7 percent to $8,120  a
tonne.   
    

    SPAIN GAINS
    General market sentiment was also supported by signs of a
compromise to avert a U.S. fiscal crisis.
    Republican leaders in the U.S. House of Representatives have
scheduled a vote on Wednesday on a nearly four-month extension
of U.S. borrowing capacity, aimed at avoiding a fight over the
looming need to raise the federal debt ceiling.
    Bond market investors were also eyeing a new 10-year Spanish
bond sale, its first since November 2011, as the latest evidence
of its rising confidence following the European Central Bank's
promise to buy its bonds if necessary. 
    Last week, Rome sold 6 billion euros of its first 15-year
bond in more than two years.
    "Anything below 4 billion (euros) would most likely be seen
as a disappointment after the Italian deal," Michael Leister,
senior interest rate strategist at Commerzbank, said of Spain's
sale.
    The upbeat German ZEW release, which put German investor and
analyst morale at a 2-1/2 year high, prompted a fall in German
government bonds and lifted the euro
. 
    The single currency was down 1 percent on the day against
the yen at 118.3 yen, however, as disappointment that
there will be no immediate BOJ easing saw the yen strengthen
across the board. 
    The dollar also fell 1 percent against the yen to a session
low of 88.365 yen.
    "There was some disappointment in markets that the BOJ would
start their open-ended bond purchases only in January 2014, so
we see some profit taking in dollar/yen," said Bernd Berg,
global FX strategist at Credit Suisse.
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