GLOBAL MARKETS-Bonds rally on weak U.S. data; Italian markets down

Mon Aug 26, 2013 2:52pm EDT

* Italian stocks, bonds fall on Berlusconi threat
    * Weak U.S. goods data tempers September Fed tapering view
    * Currency markets subdued, dollar finds support after dip


    By Ryan Vlastelica
    NEW YORK, Aug 26 (Reuters) - U.S. Treasury bonds rallied
after July durable goods orders came in weaker than expected on
Monday, but global equity markets were relatively calm in an
otherwise slow trading session.
    One exception was in Italy, where the risk of a new
government crisis sent shares and bonds tumbling.
    Orders for long-lasting U.S. manufactured goods fell the
most in nearly a year last month and a gauge of planned business
spending on capital goods tumbled.
    The weak data boosted prices in the U.S. bond market, where
the benchmark 10-year U.S. Treasury note was up
3/32, the yield at 2.8073 percent.
    The durable goods report was the latest in a series of data
points that have kept expectations for the Federal Reserve's
next step muddled. Economists largely expect the Fed will start
to reduce its $85 billion in monthly purchases of debt, but some
uncertainty over this remains.
    "If there is anything that is driving the markets today, it
is that the durable goods numbers were weaker than expected and
that raises the question whether the Federal Reserve might not
begin to taper," said Hugh Johnson, chief investment officer of
Hugh Johnson Advisors LLC in Albany, New York.
    The debate over the Fed's plans and its impact on emerging
economies has dominated markets in recent weeks. 
    The Dow Jones industrial average was up 16.19 points,
or 0.11 percent, at 15,026.70. The Standard & Poor's 500 Index
 was up 1.88 points, or 0.11 percent, at 1,665.38. The
Nasdaq Composite Index was up 18.94 points, or 0.52
percent, at 3,676.73. 
    "The numbers were disappointing this morning, but maybe
we've returned to one of those odd situations where bad news is
good for the market in terms of the Fed tapering," said Peter
Jankovskis, co-chief investment officer at OakBrook Investments
LLC in Lisle, Illinois.
    In Italy, members of Silvio Berlusconi's center-right People
of Freedom party said on Sunday they would force early elections
if their center-left coalition allies voted next month to expel
the former Italian premier over a tax fraud conviction.
 
    Italian shares ended down 2.1 percent, but the
broader euro zone stock market was down just 0.2
percent. Italy's bonds fell, taking Spanish and
Portuguese bonds down with them. 
    Investors are worried that Italy's plans to mend its
finances will fall apart if the coalition crumbles and that
being without a government could make it tricky for the European
Central Bank to shield it from market pressure. 
    "If you have new elections now there is a high risk you
would not have a majority government, so that is why we are
seeing a widening of spreads in the periphery," said ING rate
strategist Alessandro Giansanti. He noted the timing is poor,
given Italy is set to sell bonds this week.
    
  
         
    EMERGING LULL 
    After the turmoil of last week, share indexes in
India gained ground, though there were modest falls in Indonesia
and both countries' currencies weakened again against the
dollar..
    Investors are expecting improving returns from advanced
economies while India, Indonesia and Brazil have all scrambled
in recent weeks to try to stem destabilizing outflows that have
crippled their currencies. 
    The Indian rupee weakened on Monday, tracking
offshore rates, while month-end dollar demand from importers
also dragged the currency lower. The country's central bank
stepped in to sell dollars to try to restrain the decline, which
has taken the rupee to record lows.
    Against the yen, the dollar traded at 98.64 off
Friday's peak of 99.15, while the euro bought $1.3369,
having climbed as high as $1.3410.
    Spot gold, which as an inflation hedge has benefited from
the global flood of liquidity, briefly popped above $1,400 an
ounce for the first time since early June, extending
Friday's 1.5 percent rally. It last traded down 0.2 percent. 
    U.S. crude slipped 0.5 percent to $105.86 a barrel,
while Brent was down slightly at $110.67.
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