GLOBAL MARKETS-Europe steadies after risk aversion sweeps Asia

Fri Jan 3, 2014 9:04am EST

* Snow-blasted Wall Street expected to edge higher,
    * European shares firm after Asian markets roiled
    * Euro runs into profit-taking, yen gets a lift
    * Gold bounce continues, oil nurses losses on supply outlook

    By Marc Jones
    LONDON, Jan 3 (Reuters) - European stock markets resisted a
wave of risk aversion that had swept across Asia on Friday, but
the euro weakened as the yen and gold held onto most of their
early gains.
    Wall Street, in the grip of a snowstorm, was expected to see
a quiet open after Thursday's poor start to 2014. With little
data on tap, the focus will be on a speech by outgoing Federal
Reserve Chairman Ben Bernanke for any fresh details on the
bank's plans for stimulus withdrawal.
    In Asia, where stocks suffered their toughest session in
almost a month and a stack of major currencies fell against the
safe-haven yen, investors had taken fright at more weak data
from Beijing.
    A measure of activity in China's services sector slipped
back in December, just as one for manufacturing had on Thursday.
    
    "Asian activity was interesting because we had the PMI
number from China which was disappointing," said Rabobank
currency strategist Jane Foley. "The Asian stock markets came
off and consistent with that there was some yen buying."
    European stocks fared better as global manufacturing ended
2013 on a strong note with the United States, Japan and Germany
all seeing demand pick up. 
    Having tumbled on Thursday and seen an indecisive start to
Friday, the benchmark FTSEurofirst 300 index rose 0.4
percent, also helped by some upbeat Christmas retailers and weak
euro zone lending data likely to keep easing on the ECB's
agenda. 
  
    
    EURO WOES
    The euro weakened as speculators booked profits on long
positions after a strong 2013. Having spent much of the day
testing a six-week low, the common currency had recovered
slightly to 1.3652 by mid-afternoon.
    The same forces gripped sterling, another strong performer
in recent months. The pound peeled away to $1.6424 from a
28-month peak of $1.6605 amid a slump in UK business lending.
 
    The yen enjoyed a short-covering bounce. Borrowing in yen to
buy higher-yielding assets has been a popular trade, leaving the
market vulnerable to sudden, if usually brief, reversals.
    The dollar came off to 104.35 yen after rising as
high as 105.44 on Thursday, its strongest since October 2008.
The euro retreated as low as 142.10 yen from a peak of
145.12 on Thursday.
    "The yen is strong because it remains the major currency
market's best proxy for risk, so when you have a strong
correction lower in risk appetite that sees the yen supported,"
said John Hardy head of FX strategy for Saxo bank in Copenhagen.
    "I suspect it is a bit of a knee-jerk consolidation at the
start of the year, but it is interesting that it started that
way
    
    GOLD SHINES
    Another source of anxiety in Asia had been Thailand. Growing
political uncertainty lopped another 0.5 percent off stocks
there after a 5 percent decline on Thursday. The Thai
currency also took a bath, hitting its lowest since early 2010
at 33.03 per dollar.
    However, as the tensions wore off in Europe, bond markets
found their recent rhythm again.
    The short-covering pressure that had extended to U.S.
Treasury debt started to ease allowing yields on the 10-year
note to edge back up to a fraction below 3 percent having topped
at 3.04 on Thursday, it's highest since mid-2011. 
    German and other top-rated European government bonds largely
mirrored the moves, while Spanish yields hit their lowest level
since September 2010 as encouraging jobless data boosted
sentiment. 
    Oil prices also steadied after taking a fall on Thursday as
Libya prepared to restart a major oilfield and on speculation of
a sharp rise in crude stockpiles in the United States.
    Brent crude levelled off at $107.78 a barrel but
that followed a drop of $2.98 on Thursday. U.S. crude was
off 13 cents at $95.30, after shedding almost $5 the day before.
    Gold was another beaten-down asset to get a reprieve, along
with silver and platinum. Bullion had swung up to
$1,230, from as low as $1,183.80 early in the week. 
    "Positive bullion prices in reaction to the decline in
equities may set the tone for 2014 and reinforce the negative
correlation between the two," HSBC analysts said in a note.
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