GLOBAL MARKETS-BOJ bond buying sinks yen; U.S. stocks fall

Mon Apr 8, 2013 11:04am EDT

* Yen touches multi-year lows vs dollar and euro

* Nikkei index soars to highest since August 2008

* World stocks stage recovery from Friday's selloff

NEW YORK, April 8 (Reuters) - The yen slumped against the dollar and the euro for a third day on Monday as the Bank of Japan began its boldest economic boost yet while U.S. stocks fell, failing to follow gains elsewhere in the world.

The dollar rallied to 99 yen, its highest since May 2009, and the euro touched a three-year peak against the Japanese currency after the BOJ conducted its first bond purchases since announcing the new monetary easing steps last week.

Since new BOJ Governor Haruhiko Kuroda promised on Thursday to inject about $1.4 trillion into the economy in less than two years, the yen has fallen more than 6 percent against both the dollar and the euro, while Japanese stocks have soared

"Barring any sudden spike in risk aversion (dollar/yen) is likely to roll through that (100) level as momentum remains relentless for the time being," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.

The dollar settled around 98.85 yen for a gain of 1 percent from Friday's New York close, and the euro added 1.5 percent to trade at about 128.64 yen.

Japan's Nikkei stock average jumped as much as 3.1 percent on Monday to its highest level since August 2008.

"The BOJ's bazooka has sparked the buying of Japanese stocks, especially domestic sectors like real estate," said Yasuo Sakuma, a portfolio manager at Bayview Asset Management.

The BOJ has said would buy 1 trillion yen ($10 billion) of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.

MSCI's world equity index rose 0.07 percent to 355.76 after registering its worst week of the year on Friday with a five-day loss of 1.26 percent.

TREND FAILS

But the trend failed to flow through to Wall Street.

U.S. stocks slipped, following the S&P 500's largest weekly decline this year, ss investors faced the prospect of a lackluster corporate earnings season and an economy that could be hitting a slow patch.

The Dow Jones industrial average was down 50.11 points, or 0.34 percent, at 14,515.14. The Standard & Poor's 500 Index was down 2.27 points, or 0.15 percent, at 1,551.01. The Nasdaq Composite Index was down 5.23 points, or 0.16 percent, at 3,198.63.

Defensive shares led the downside move on Monday, including the telecommunications sector, which fell 0.8 percent.

Earnings forecasts have been scaled back heading into first-quarter reports. S&P 500 earnings are expected to have risen just 1.6 percent from a year ago, according to Thomson Reuters data, down from a 4.3 percent forecast in January.

Still, U.S. stocks have rallied strongly this year with major indexes hitting record highs, helped in part by the Federal Reserve's stimulus program. The S&P 500 is up nearly 9 percent for the year so far, while the Dow has gained just under 11 percent.

"It's a little easier to pull the trigger and take some profits when you're on the fringe of an earnings season that might not be as good as what the stock market has indicated with a phenomenal first quarter," said Alan Lancz, president at Alan B. Lancz & Associates Inc in Toledo, Ohio.

The prospect that Japanese investors will move out of the domestic debt market due to the heavy central bank buying has boosted the attractiveness of some European debt and demand for U.S. Treasuries.

U.S. Treasury 10-year note yields fell sharply last week in response to the new BOJ policy but edged up on Monday to 1.718 percent as some traders booked profits and dealers prepared for this week's auctions of $66 billion in longer-dated Treasury debt.

In Europe the main beneficiary was French debt with 10-year bond yields hitting a record low.

CHINA DATA EYED

Oil prices staged a similar recovery to equities elsewhere in the world, rebounding more than $1 per barrel, having hit eight-month lows at the end of last week fuelled by the worries over global economic growth.

Brent crude rose to a high of $105.55 before trading around $104.74. U.S. crude rose 48 cents to $93.19 a barrel after logging its biggest weekly loss in more than six months last week.

A rise in Chinese steel futures to their highest in more than a week in anticipation of improving demand in the world's second-biggest economy during the second quarter supported other industrial commodities like copper.

Three-month copper on the London Metal Exchange climbed 0.7 percent to $7,457 a tonne, up from an eight-month low of $7,331.25 hit last week. The metal is still down more than 3 percent over the past three weeks.

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