GLOBAL MARKETS-Yen snaps three-day drop, stocks up on China data

Tue Apr 9, 2013 10:45am EDT

* Yen's slide halts just before 100 to dlr

* BOJ action keeps global bond yields near lows

* Benign China inflation data boosts sentiment

* U.S. stocks reflect earnings and China data

NEW YORK, April 9 (Reuters) - The yen rallied on Tuesday, snapping a three-day decline against the dollar and euro as it neared 100 to the dollar, while a fall in Chinese inflation and expectations for modest growth in U.S. corporate earnings helped stocks.

The Japanese currency weakened to 99.66 to the dollar, using Reuters data, the greenback's strongest level against the yen since May 2009, before the sell-off in the yen stalled. The euro peaked at 129.93 yen, its highest since January 2010.

Analysts believe it is only a matter of time before the dollar sails past the 100 yen mark.

"Given the breadth of yen bearishness, any reprieve would likely encourage investors to re-establish short yen positions at more favorable exchange rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

Tuesday's dollar selling left the greenback down 0.3 percent at 99.10 yen, while the euro was off 0.1 percent on the day at 129.17 yen.

The U.S. currency has still gained around 7 percent against the yen since the Bank of Japan unveiled a massive stimulus program last Thursday involving large purchases of long-term Japanese government bonds.

The BOJ's bold measures have had a major impact on the world's main debt markets, sending Japanese government yields down sharply and spurring a search for higher-yielding assets, which has caused yields to fall on U.S. and euro zone bonds.

"Markets are increasingly focused on the notion that larger JGB purchases, at longer maturities, by the BOJ could push Japanese domestic long-term investors elsewhere," said Vassili Serebriakov, strategist at BNP Paribas in London.

However, yields on highly rated euro zone bonds moved up from record lows on Tuesday as investors began to position for fresh government debt auctions.

German 10-year bond yields were higher at 1.262 percent, having hit 1.2 percent on Friday, their lowest level since mid-2012 before European Central Bank President Mario Draghi promised to do whatever it took to save the euro.

U.S. Treasuries prices rose to session highs ahead of the Federal Reserve's regular purchase of long-dated government debt, part of its quantitative easing program to lower unemployment.

Benchmark 10-year Treasury notes last traded up 5/32 in price for a yield of 1.726 percent, down 1.9 basis points from late on Monday.

STOCKS RISE

Equity markets were mostly higher as investors hoped for more accommodative monetary policy from China following benign inflation data and after U.S. resources giant Alcoa posted earnings.

The Dow Jones industrial average was up 4.46 points, or 0.03 percent, at 14,617.94. The Standard & Poor's 500 Index was up 0.56 points, or 0.04 percent, at 1,563.63. The Nasdaq Composite Index was up 3.16 points, or 0.10 percent, at 3,225.41.

A significant driver of the rally has been the extraordinary stimulus measures from the Federal Reserve. With the start of corporate earnings season for the first quarter, investors will be looking at company forecasts to gauge whether the fundamentals are strong enough to keep stocks climbing higher, said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

"The rally will be confirmed if earnings can stay strong and if companies can continue to thrive even as government spending is reduced, and I think it will falter if it proves (companies) are unable to do so," said Meckler.

Alcoa Inc AA.N, the first Dow component to release results, reported a higher quarterly profit but lower-than-expected revenue after the bell on Monday. Shares of the largest U.S. aluminum producer were little changed at $8.37 .

MSCI's world equity index, which tracks share prices in 45 countries, was up 0.3 percent

CHINA STIMULUS

China's annual consumer inflation cooled in March as food prices eased from nine-month highs and producer price deflation deepened, data showed on Tuesday, leaving policymakers room to keep monetary conditions easy and nurture a nascent recovery.

The Chinese data underpinned demand for copper, which climbed to a two-week high of $7,609 a tonne on the London Metal Exchange before paring slightly to trade at $7,605 a tonne, up 2.1 percent.

Brent oil also gained on the Chinese data, and a stalemate in talks between Iran and Western nations over its nuclear program and rising tensions on the Korean peninsula also supported prices.

Brent rose 0.1 percent to $104.79. U.S. oil futures were little changed at $93.36 a barrel and

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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