GLOBAL MARKETS-Yen soars after G7 comment; shares climb

Tue Feb 12, 2013 12:52pm EST

* G7 statement and later remarks roil yen
    * G7 official: Group statement was "misinterpreted"
    * Equities marginally higher ahead of Obama speech
    * Markets shrug off North Korea nuclear test

    By David Gaffen and Wanfeng Zhou
    NEW YORK, Feb 12 (Reuters) - The yen swung wildly on
Tuesday, reversing the previous day's late sell-off against the
dollar and euro after an official with the Group of Seven said
it is worried about excess moves in the Japanese currency. 
    World stock markets edged higher, led by European shares.
U.S. indexes were little changed, with the S&P 500 index holding
near multi-year highs ahead of President Barack Obama's State of
the Union address. 
    The G7, in a statement, urged countries to refrain from
competitive devaluations, saying it remained committed to
"market-determined" exchange rates. This was in reaction to
weeks of concern that the new Japanese government's monetary
easing policy, which has also weakened the yen, could trigger
far-reaching currency wars.
    However, the market interpreted the statement as a sign that
the G7 supported Japan's moves, prompting an official from a G7
nation to say later that the group "is concerned about
unilateral guidance on the yen." 
    The comments - meant to clarify the G7 statement - sparked a
rally in the yen against the dollar and euro. 
    "Having asserted on Sunday evening that G20 would seek to
'calm' markets over talk of currency wars, the first ad-hoc
attempt to do so this morning has been a dismal failure," said
Richard Gilhooly, analyst at TD Securities in New York. "Rather
than calm the markets, the poorly communicated statement has
significantly raised volatility and now we have to wait to see
the actual outcome of G20 on the weekend." 
    The dollar was down 1.2 percent against the yen at 93.14
, having risen to 94.42 yen on Monday, according to
Reuters data, the highest since May, 2010.
    The euro fell 0.9 percent to 125.30, after a 2
percent rally on Monday. 
    The G7 must go into this weekend's G20 meetings forcefully
pressing major emerging economies to adopt flexible foreign
exchange rates, Bank of Canada Governor Mark Carney said on
Tuesday.
    Tokyo is likely to come under serious pressure when G20
finance ministers and central bankers meet in Moscow at the end
of the week, not least because the United States is employing
similar policies.
    Japanese Finance Minister Taro Aso welcomed the statement,
saying it recognized Tokyo's policy steps were not "aimed at
influencing currency markets."
    U.S. Treasury official Lael Brainard said on Monday that
while competitive devaluations should be avoided, Washington
supported Tokyo's efforts to reinvigorate growth and end
deflation. 
    MSCI's global share index was up 0.5 percent
at 356.55. European shares gained 0.6 percent to close
at 1161.46, led by UK banks after Britain's third-biggest
lender, Barclays, unveiled cost cuts and a strategic
overhaul.
    On Wall Street, the Dow Jones industrial average 
gained 45.05 points, or 0.32 percent, at 14,016.29. The Standard
& Poor's 500 Index was up 3.21 points, or 0.21 percent,
at 1,520.22. The Nasdaq Composite Index was up 0.77
points, or 0.02 percent, at 3,192.77. 
        
  
    
    STATE OF THE UNION
    The economy will be a major topic of Obama's speech before a
joint session of Congress set for 9 p.m. (0200 GMT Wednesday).
Investors will listen for any clues on a deal with Republicans 
to avert automatic spending cuts due to take effect March 1.
 
    Benchmark 10-year Treasury notes fell 2/32 in
price to yield 1.97 percent, up from 1.96 percent late on
Monday, as investors prepared to absorb $72 billion in new debt
supply this week.
    In European bond markets, Spanish and Italian bonds inched
up as domestic buyers took advantage of a recent sell-off. But
the recovery looked fragile, given political uncertainty in both
countries.
    Spain sold 5.6 billion euros of 6- and 12-month debt,
beating the top end of the target amount, but paid a higher
yield on the longer-term paper as a political corruption scandal
weighed on shaky confidence. Italy's debt costs also rose as it
sold 8.5 billion euros of one-year paper. 
    The euro rose 0.4 percent to $1.3462, accelerating
gains after European Central Bank President Mario Draghi said
there is no such thing as a currency war and that Spain was on
the right track toward economic recovery. 
    Brent oil rose 14 cents to $118.27 a barrel. Spot
gold clawed back from its lowest in over a month and was
last at $1,652 an ounce.  
    Financial markets showed a muted reaction to news that North
Korea has conducted a nuclear test and said it would never bow
to U.N. resolutions. 
    A nuclear test monitoring agency in Vienna said the blast
was double the size of North Korea's last test in 2009. NATO
condemned the move, calling it an "irresponsible act" that posed
a grave threat to world peace.
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