GLOBAL MARKETS-Euro regains footing as data pick-up tempers ECB rate cut bets

Wed Nov 6, 2013 7:31am EST

* Euro regains footing, but ECB under pressure to boost
stimulus
    * European shares inch higher to new 5-year highs
    * Markets can't shake Fed speculation as U.S. data improves
    * Gold steadies after longest losing streak in nearly 6
months

    By Marc Jones
    LONDON, Nov 6 (Reuters) - The euro rose off a seven-week low
on Wednesday as talk of the U.S. Federal Reserve extending the
lifespan of its stimulus programme and some robust data offset
expectations of more European Central Bank easing in coming
months.
    With uncertainty high over what steps the ECB might hint at
after its meeting on Thursday, investors focused on fresh euro
zone data as solid services PMIs and a surge in German factory
orders offset some weaker retail figures. 
   
    The services report pointed to a continued gradual recovery
in the 17-country euro zone but one that remains painfully slow
in many parts of the bloc. 
    European shares had already inched to a new five-year high
by the time the data came out. A batch of better-than-expected
results provided the leg up, including from world No. 1 jobs
agency Adecco, which flagged increasing demand in
Europe.   
    The euro held onto gains at $1.3520, having jumped
after the German data and risen steadily from $1.3469 overnight,
although expectations of a dovish turn by the ECB kept a lid on
the shared currency.
    "For the next couple of days we have such a heavy events
schedule, with the ECB tomorrow and then U.S. payrolls on
Friday, that I think we are looking at the market battening down
the hatches," said Ned Rumpeltin, head of G10 FX strategy at
Standard Chartered.
    The dollar, meanwhile, pared its recent gains against a
basket of major currencies and dipped 0.3 percent, even
while it edged up on the Japanese yen to 98.60.
    Comments from Fed policymaker John Williams, who said the
central bank should wait for stronger evidence of growth
momentum before trimming bond-buying, helped balance out a 
surprisingly strong U.S. service sector report. 
   
    
    BONDS NUDGE UP
    A pair of research papers by top Fed officials suggesting
the central bank has the scope for even more economic stimulus
and for more relaxed thresholds on when to raise rates also
created a stir. 
    Jan Hatzius, chief economist at Goldman Sachs, felt the
papers were important enough to alter his outlook for policy.
    "The studies suggest that some of the most senior Fed
staffers see strong arguments for a significantly greater amount
of monetary stimulus," he wrote in a note to clients.
    "Our central case is now that the FOMC will reduce the
threshold from 6.5 percent to 6 percent at the March Open Market
Committee meeting."
    That helped Treasury prices and trimmed yields on 10-year
notes by 15 basis points to 2.6476 percent, while
German Bunds matched the moves in Europe.
 
    Futures prices also pointed to Wall Street  
making back the small losses Tuesday's stronger-than-expected
data had caused as investors began thinking again about the Fed
trimming its huge stimulus programme.
    Asian markets had for the most part moved sideways in face
of the uncertainty over U.S. and European monetary policy,
though Japanese stocks managed to buck the trend thanks
to gains in major car makers.
    Excitement was otherwise sorely lacking, with MSCI's index
of Asia-Pacific shares outside Japan barely
moved. Australia's main index was all but flat, while
shares in Shanghai dipped.    
    
    A FLYING KIWI 
    While evidence of economic resilience from Tuesday's upbeat
services data was welcome, it also adds to the case for the Fed
to wind back its bond buying programme. Most analysts still
favour March as the window for a move, but a shift in December
is a growing risk.
    New Zealand also added to the run of better global economic
news as employment jumped well more than forecasts. It prompted
investors to bring forward rate hike expectations. The country's
dollar climbed a third of a U.S. cent to $0.8400.
    In commodity markets, gold was a few dollars firmer
at $1,317.79 and trying to stabilise after seven straight
sessions of losses. Copper rose 0.4 percent.    
    Oil prices recouped just a little of their recent losses,
which had seen U.S. crude end at a five-month trough on Tuesday.
Growing U.S. supplies have continued to pressure oil prices,
with U.S. crude ending on Tuesday at a five-month low.
    Brent crude regained 80 cents to $106.16 a barrel,
while NYMEX crude futures bounced 82 cents to $94.18.
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