GLOBAL MARKETS -Russian rouble slumps to 5-year low, yuan steady

Wed Feb 26, 2014 9:53am EST

* European shares sag, Wall St starts near record high
    * China's yuan steady after Tuesday's slide
    * Rouble hits five-year low on Ukraine fallout
    * Major currencies drift, gold near four-month peak
    * Fed Chair Yellen to testify to Senate on Thursday

    By Marc Jones
    LONDON, Feb 26 (Reuters) - Worries grew on Wednesday that
investors were backing away from some of the world's key
emerging markets, as Russia's rouble hit a five-year low the day
after China's yuan saw its biggest drop in three years.
    The slide in the rouble came as tensions escalated in
Ukraine, amid reports Vladimir Putin had ordered drills by his
armed forces in western Russia, near the border with Ukraine.
    The threat of debt default by Ukraine also rose. Russia
holds $3 billion worth of Ukrainian debt issued last December,
which could end up in default if certain terms are breached.
 
    The rouble, at 36 to the dollar, was at its lowest
since early 2009 as U.S. trading picked up. Ukraine's hryvnia
 hit a record low of 10 per dollar.
    "Today's price action in the rouble is about Ukraine" said
Rabobank emerging market economist Christian Lawrence. "Quite
frankly, nobody knows what is going to happen there."
    The market moves come at a time when some investors are
already pulling money out of emerging markets and putting it
back into better-understood developed economies.
    Chinese shares and the yuan  stabilised after
sharp falls on Tuesday, although dealers suspect the People's
Bank of China was maintaining a gradual squeeze on the yuan
, to inject more two-way volatility into the market
and wrong-foot speculators betting it would keep rising.
    The government said on Wednesday in comments published on
the State Administration of Foreign Exchange (SAFE) website the
drop in the yuan was "due to an adjustment of trading strategy
by main market participants." It added: "Fluctuations are normal
compared to volatility in developed and emerging market
currencies. Don't read too much into them." (www.safe.gov.cn)
  
    
    WALL STREET NEAR RECORD
    Wall Street inched up, remaining around its record highs as
money flowed back into developed markets. 
    A cautious tone was warranted before Federal Reserve Chair
Janet Yellen testifies before the U.S. Senate on Thursday. She
is likely to get questions on the recent spate of soft U.S.
economic news and what it might mean for policy.    
    Europe's main share bourses in London, Frankfurt
 and Paris were all staring a second straight
day in the red. Falls in Swiss banks Credit Suisse and
UBS added to the uncertain mood to the east.
    Among major currencies, dealers reported scant activity
ahead of the month's end and a slate of major global data next
week. The dollar inched up on the yen to 102.34, and made
some headway against the euro, at $1.3690. The euro has
been corralled in a $1.3685-$1.3773 range for the past six
sessions as traders debate whether the ECB will ease its policy
next week.
    
    GOLD GLITTERS   
    In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan had crept up 0.28 percent, with
South Korea, Taiwan and the Philippines all fractionally firmer.
Tokyo ended down 0.2 percent, following a 1.4 percent
gain on Tuesday.
    Economic data from the United States on Tuesday had been too
mixed to offer a lead. A closely watched housing survey showed
home prices rose slightly more than expected but February
consumer confidence fell short of expectations.
    Yields on 10-year U.S. Treasury notes inched up to 2.715
 percent in early U.S. trade after dipping 5 basis
points overnight.
    Both the record level on Wall Street and the drift lower in
Treasuries came as soft U.S. data raised suspicions the Federal
Reserve will be extra cautious as it looks to scale back its
stimulus programme.
    Gold, which has been one of the major winners from the
recent wobble in Fed sentiment and emerging market uncertainty,
pushed to a four-month top at $1,343.40 an ounce before
easing slightly to $1.332.00.
    "At the moment, the market is reacting to weaker data from
China and the U.S. on the assumption that if economic slowdown
is confirmed, then there may be some scaling back of Fed
tapering," Saxo Bank senior manager Ole Hansen said. "But it is
not really a runaway. We are just grinding higher."
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