GLOBAL MARKETS-Euro hits 6-week low on ECB loan repayment, Italian elections

Fri Feb 22, 2013 5:31pm EST

* Low ECB loan repayment pushes euro to 6-week low
    * U.S., European shares, commodities rebound after sharp
losses
    * Italian elections in focus
    * Wall St rebounds on HP, Fed officials' views but S&P posts
first down week for the year


    By Angela Moon
    NEW YORK, Feb 22 (Reuters) - Global equity markets rebounded
on Friday, recovering some of the previous session's sharp
losses, but the euro hit a six-week low against the dollar on
renewed doubts about the health of the euro zone's financial
system.
    Wall Street ended higher, boosted by Dow component
Hewlett-Packard, whose shares surged on strong results,
and as comments from Federal Reserve officials allayed fears
that the U.S. central bank would curtail its stimulus measures.
    But for the week, the S&P 500 posted its first weekly
decline for the year. Risk-associated assets have been rattled
this week by suggestions the Fed could scale back its monetary
support sooner than expected and by weak euro zone data that
dashed hopes of an early recovery in the recession-hit region.
    In a sign that some euro zone banks may still need support,
the ECB said just over 61 billion euros ($81 billion) of the 530
billion it lent at the height of the bloc's crisis last year
will be repaid when banks get the first opportunity next week.
 
    That was well below the 130 billion euros expected by
traders and means there remains more than enough cash in the
banking system to keep downward pressure on money market rates.
The news sent the euro to a six-week low against the dollar.
    "The smaller-than-expected payback of loans means the ECB's
balance sheet will shrink at a slower-than-expected pace," said
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington. It "further undermined confidence in the
state of recovery in the 17-member bloc."
    Stocks fared better in Europe as investors looked to take
advantage of the previous session's sharp sell-off, though
traders cited some caution given the elections in Italy.
    The FTSEurofirst 300 closed up 1.2 percent at
1,165.43, having sunk 1.5 percent on Thursday.
    The Dow Jones industrial average gained 119.95
points, or 0.86 percent, to 14,000.57. The Standard & Poor's 500
Index ended up 13.18 points, or 0.88 percent, at
1,515.60. The Nasdaq Composite Index  was up 30.33
points, or 0.97 percent, at 3,161.82.
    But for the week, the S&P 500 slipped 0.3 percent and the
Nasdaq lost nearly 1 percent. Only the Dow ended the week with a
gain - up just 0.1 percent. 
    MSCI's world share index gained 0.6 percent.
For the week, the index was off 0.5 percent.
    Like equities, commodities rebounded from Thursday's big
sell-off.
    Brent crude rose 57 cents to settle at $114.10 a
barrel, but was down 3 percent on the week. U.S. crude futures
 rose 29 cents to settle at $93.13 a barrel, but were down
2.8 percent this week.
    
    FED DOWNPLAYS WORRIES 
    Federal Reserve Chairman Ben Bernanke downplayed worries
that the Fed has fueled asset bubbles that could hurt the
economy in a private meeting with bond dealers and investors
earlier this month, according to a report by Bloomberg on
Friday. 
    Bernanke's view helped ease fears that the central bank may
end its easy money policies. Minutes from the Fed's  January
meeting hit markets on Wednesday as investors interpreted
divergent opinions on the benefit of stimulus as a sign the
measures may be halted sooner than thought. 
    "They are in uncharted territory with divergent views," said
Jack Ablin, chief investment officer at BMO Private Bank in
Chicago. "I could see some pretty heated opinions on what the
ultimate outcome is, so I do believe there is dissension." 
    With Bernanke's reported comments much on their minds in
Friday's session, investors will want the Fed chairman to
reiterate his remarks publicly when he speaks before the Senate
Banking Committee on Tuesday. That would echo comments made by
two top Fed officials on Friday.
    Boston Fed President Eric Rosengren and Fed Governor Jerome
Powell both defended the U.S. central bank's asset-buying
program, arguing that the policy helps the U.S. economy.
    U.S. Treasuries prices edged higher as investors prepared
for Bernanke's testimony next week.
    The 10-year note was 2/32 higher in price at
100-10/32, yielding 1.964 percent, down 1 basis point from late
on Thursday.
    
    EURO TUMBLES
    The euro fell as low as $1.3144, its lowest since
Jan. 10, retreating from a session high of $1.3244 after the
German Ifo survey showed a big jump in business morale in
Germany, suggesting a brighter outlook for the euro zone's
largest economy. 
    The yen dropped against the dollar and euro, with many
investors forecasting further weakness as the Bank of Japan
looked set to ease monetary policy further to fight deflation.
    On top of the low ECB repayment, a report from the European
Commission that forecast the euro zone economy will contract
again in 2013, and caution ahead of Italy's election this
weekend, also weighed on the euro, which fell for a third
straight session. 
    Adding pressure on the euro, Italians go to the polls this
weekend in an election that could threaten reforms in the
indebted country. Silvio Berlusconi's resurgence has thrown the
vote wide open, with deep uncertainty over whether the poll can
produce the strong government the country needs.
    Inconclusive Greek elections last year sparked a protracted
sell-off and a period of uncertainty in markets.
    For the week, the euro fell 1.3 percent versus the dollar.
    Against the yen, the euro rose 0.3 percent to 123.12 yen
. The dollar rose 0.3 percent to 93.39 yen, not
far from a 33-month high of 94.47 hit last week.
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