GLOBAL MARKETS-Stocks weighed by disappointing U.S. GDP data

Wed Jan 30, 2013 10:56am EST

* U.S. GDP miss puts downward pressure on stocks
    * Fed's statement awaited for clues on asset-buying program
    * Euro climbs, bund futures tick lower


    NEW YORK, Jan 30 (Reuters) - An unexpected contraction in
the U.S. economy in the fourth quarter sent stocks in Europe and
the United States lower on Wednesday but helped keep the euro
close to a 14-month high on expectations the U.S. central bank
will continue its easy monetary policy. 
    Positive stock sentiment after strong results at Boeing and
Amazon.com and a strong private sector employment report
 was offset by the negative U.S. gross domestic
product report.
    The Federal Reserve is expected to maintain asset buying at
$85 billion a month when it concludes its meeting later in the
day and stick to its commitment to hold interest rates near zero
until unemployment falls to at least 6.5 percent from the
current 7.8 percent. 
    That expectation was bolstered for some investors by the GDP
 data, which showed the world's largest economy in the fourth
quarter unexpectedly suffered its first decline since the
2007-09 recession.  Gross domestic product fell at a 0.1 percent
annual rate after growing at a 3.1 percent clip in the third
quarter.
    The GDP data also overshadowed a third straight rise in
European economic confidence, an increase in European Central
Bank crisis loan repayments and a solid sale of five- and
10-year Italian bonds, which provided fresh evidence of the
recent improvement in the region. 
    "This is one chink in the armor of the recent
better-than-expected economic indicators. This will make people
start to get wary," said Wayne Kaufman, chief market analyst at
John Thomas Financial in New York. "If it turns out Sandy and
the 'fiscal cliff' were the reasons for (the contraction),
people will shrug it off."
    The Dow Jones industrial average was down 18.43
points, or 0.13 percent, at 13,935.99. The Standard & Poor's 500
Index was down 3.08 points, or 0.20 percent, at 1,504.76.
The Nasdaq Composite Index was down 3.45 points, or 0.11
percent, at 3,150.21. 
    European shares were down 0.5 percent, although an
earlier rise in Asian shares kept the MSCI world share index
 flat after reaching a 21-month high.
    
    EURO HIGHER
    There had been optimism earlier in the day after several
encouraging reports on the European economy that caused the euro
 to break above $1.35 for the first time since December
2011.  The euro was last at $1.3563.         
    Expectations of easy U.S. monetary policy added to the
attractiveness of the euro. In recent years investors would buy
the dollar as a safer haven on bad economic data, but at least
on Wednesday, they saw the euro as a better bet. 
    "This is a source of weakness for the dollar because it
takes away the narrative that the U.S. economy is performing
better than the rest of the world," said Joe Manimbo, senior
market analyst at Western Union Business Solutions.
    Alongside the rebound in confidence in the euro zone, one of
the key drivers behind the currency's recent spike has been the
eagerness of banks to repay the crisis loans they took from the
ECB just over a year ago.
    Banks returned a larger-than-expected 137.2 billion euros of
those loans on Wednesday and also surprised analysts by trimming
their three-month funding, despite predictions they would use it
partly to restock their coffers.  
 
    CONFIDENCE RALLY
    The focus of the Fed decision will be on its outlook for the
economy and its bond buying program after it sounded slightly
more hawkish last month. 
    The benchmark 10-year U.S. Treasury note was
down 5/32, the yield breaking a recent barrier at 2.0154
percent.
    Bund futures fell to session lows on Wednesday, with
investors taking the view that the contraction in the U.S.
economy last year was not going to have significant impact on
the Fed's policy moves.
    Bund futures fell as low as 141.36, down 46 ticks
on the day.
    China's promising economic growth forecast for 2013 raised
expectations for robust demand for fuel and industrial
commodities, underpinning oil prices and lifting copper.
  
    Brent crude oil reached its highest level in three and a
half months as it passed $115 a barrel. It last traded at
$114.60. U.S. light sweet crude oil was flat at $97.57
per barrel.    
    "Oil has followed risk assets higher, but we think it's
strong versus the fundamentals, with production cuts needed from
Saudi Arabia due to strong supply from OPEC," cautioned Filip
Petersson, an SEB analyst in Stockholm.
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