GLOBAL MARKETS-Weak euro area growth hits currency, shares rise

Wed May 15, 2013 8:42am EDT

* Euro breaks below $1.29 on weak euro zone data
    * European GDP data fuels rate cut hopes
    * Dollar rises through 102.50 yen briefly
    * European shares climb, U.S. stocks seen mixed

    By Richard Hubbard
    LONDON, May 15 (Reuters) - The euro hit a six-week low
against the dollar and European shares rose on Wednesday after
euro zone economic data undershot already weak expectations,
strengthening the case for another interest rate cut.
    Europe's broad FTSEurofirst 300 index of top 
company shares was up 0.5 percent at 1,242.54 points by midday,
a level not seen since mid-2008. However, U.S. stock index
futures pointed to a more mixed open on Wall Street. 
    "If we look at the figures from this morning, Europe is
still in the doldrums but liquidity is still dominating the
market and investors are hoping at least that the second half of
this year will improve," said Rabobank euro zone market
strategist Emile Cardon. 
    The euro, down roughly 2.3 percent against the dollar in
May, fell 0.3 percent to a low of $1.2883 after data
showed Germany's economy crept back into growth at the start of
the year but not by enough to take the euro zone out of
recession. 
    European Central Bank president Mario Draghi has said he
will cut rates again if the growth outlook for the region
worsens, making markets highly sensitive to each data release.
    Draghi is "trying to be transparent and tell the market that
any sort of weak data would give (the ECB) scope to cut again,
and certainly that's the way the market is trading," said Greg
Matwejev, director of FX Hedge Fund Sales and Trading at
Newedge. 
    The euro zone has now been stuck in recession since the end
of 2011, with the latest data showing the region's economy
shrank 0.2 percent in the January-March quarter. 
    Growth should return to the 17-member currency bloc in the
second half of this year, but economists see no chance it will
recover strongly until at least 2015, the latest Reuters poll
showed. 
    By contrast, a run of solid U.S. economic data has raised
expectations the Federal Reserve may wind down its asset-buying
effort by the end of the year, driving the dollar to a 4-1/2
year high against the yen on Wednesday of 102.63.
    Against a basket of major currencies, the dollar rose 0.5
percent to 84, a peak not seen since last summer, before
Draghi pledged to do "whatever it takes" to save the euro.
    
    
    LIQUIDITY RULES
    The Fed's easy monetary policy, a big injection of cash from
the Bank of Japan into its economy and hopes for easier policies
from the ECB have combined to depress yields on government
bonds.
    Britain's central bank chief Mervyn King suggested Britain
may not need to keep adding to the flood of liquidity, offering
a slightly improved outlook for the economy for the first time
since the financial crisis. 
    But King is bowing out soon and much depends on how his
successor, Canadian Mark Carney, interprets the data.  
    "The market is driven by one thing: the massive liquidity
injected by central banks. With bond yields at such levels,
equities seem to be the only interesting asset class," said
Thierry Jabes, strategist at 360 Asset Managers, which has 180
million euros ($232 million) under management.    
     Liquidity in the system has driven MSCI's world equity
index back to levels last seen in mid-2008. It
was flat at 376.18 points and about 13 percent away from its
all-time high set in October 2007.      
     In Asia, the yen weakness induced by the BOJ's action
lifted Japan's Nikkei share average above the
psychologically key 15,000 threshold for the first time since
January 2008 as investors sought Japanese exporters.
    
    DEBT SUPPLY SURGE
    As returns shrink on safe haven government bonds, 10-year
Greek bond prices surged on Wednesday after Fitch Ratings
upgraded the country's sovereign credit ratings, saying reforms
have reduced its risk of a euro zone exit. 
    However, most attention was focused on Italy getting ready
to launch a new 30-year bond to follow the successful 10-year
debt sale by Spain on Tuesday. It received over 10 billion euros
($13 billion) of orders for the new bond.
    Market players had expected solid appetite for the Italian
bond after investors also snapped up Slovenian and Portuguese
debt this month in their hunt for higher-yielding securities.
 
    In the corporate credit market, fast food giant McDonald's
 was preparing a 10-year euro-denominated bond in what is
likely to be the busiest week for new corporate supply in over
two months. 
    Gold was trading around three-week lows at $1,414.50 an
ounce and stretching its losses into a fifth straight
day. 
    Brent crude slipped 39 cents to $102.21 a barrel.
U.S. oil fell $1.22 to $92.99, declining for a fifth
straight day and matching a similar losing streak in December.