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

Tue Jan 22, 2013 8:46am 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. 
    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 on the
talk but had clawed back more than half of the losses ahead of
the Wall Street open, while the pan-European FTSEurofirst 300
 was down 0.2 percent on the day at 1,164.
    This is a busy week for U.S. earnings, with Google Inc
, Johnson & Johnson, Travelers Cos and
Texas Instruments all on tap to report Tuesday. Tech
earnings will be a particular focus after a disappointing sales
outlook from Intel Corp last week. 
    A better-than-expected reading from the German ZEW investor
sentiment index helped the recovery in European shares. 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. 
    "There was a slight scare in Germany this morning which we
saw particularly in the euro/dollar move but we have more or
less recovered from that now," said Rabobank strategist Philip
Marey.
    "The market is now looking to the U.S. open and today's
data. The Richmond Fed index could underline the uncertainty
businesses are facing not only from abroad but also from Capitol
Hill (budget negotiations). But hopefully the homes sales data
will be the more positive story."
    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
before momentum waned.
    Brent crude rose 0.3 percent to $112.16 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 0.5 percent to $8,100 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 also gobbled up a new 10-year Spanish
bond, its first since November 2011, as the latest evidence of
its rising confidence following the European Central Bank's
promise to buy Spain's bonds if necessary. 
    Last week, Rome sold 6 billion euros of its first 15-year
bond in more than two years, and Spain's Economy Minister Luis
de Guindos said Tuesday's sale by his country drew estimated
demand of around 24 billion euros, describing the sum as
unprecedented.
    A government source close to the deal said Madrid would,
however, sell no more than 7 billion euros so as to leave
appetite in the market. 
    "I'm under the impression that the (Spanish) Treasury is
making the most of a benign market to increase its liquidity for
whatever comes in the future," said Estefania Ponte, economist
at Cortal Consors.

    GOOD DAY AT THE ZEW
    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 out of
slide caused by the German bank jitters. 
    The single currency remained 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.
    In Britain, sterling fell for the fifth straight day to hit
an 11-month low against the euro, weighed down by a bleak
outlook for the economy and public borrowing figures that
reinforced fears it could lose its prized triple-A rating.
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