GLOBAL MARKETS-World markets steady after Fed policy ructions

Fri Mar 21, 2014 8:19am EDT

* Fed speakers eyed for more clues to U.S. policy moves

* Weak euro set to snap longest run of weekly gains since 2007

* Europe share index eyes best weekly gain of 2014

* Traders say wary of stocks exposed to Russia

* German debt stays near 2-week high (Updates prices throughout, adds quotes, data)

By Simon Jessop

LONDON, March 21 (Reuters) - World markets steadied on Friday after a volatile week driven by speculation over shifts in U.S. monetary policy, with stocks up, Bunds flat and the euro set to snap a six-week run of gains against the dollar.

Speeches from U.S. Federal Reserve officials later in the day will be parsed for clues to the pace of U.S. tightening and could drive fresh market moves.

Approaching the start of U.S. trade, stock index futures on the Standard & Poor's 500 were up 0.3 percent, while two-year Treasury yields remained around a six-month high.

"Investors are awaiting for further confirmation from the Fed on its rate path especially if U.S. data in the second quarter starts to look up," said Geoffrey Yu, currency strategist at UBS. "For us, the dollar is a buy on dips."

Fed chair Janet Yellen surprised investors mid-week by hinting rates might rise earlier than they expected, while U.S. economic data on Thursday was mixed.

That kept the dollar near a three-week peak against a basket of major currencies and helped it gain 0.1 percent against the safe-haven Swiss franc and yen.

It dipped 0.1 percent against the euro, however, after the single currency got a boost from euro zone current account data, which hit a record high in January.

While the euro hit an intraday high of $1.3802, it remained on track to record its first weekly loss since late January and snap six weeks of gains, its longest such run since mid-2007.

The data helped counter earlier comments from European Central Bank Executive Board Member Sabine Lautenschlaeger, who said interest rates would remain low for an extended period or go even lower.

German benchmark debt futures were steady, down 1 tick at 142.38.

In Asia, currency attention was again on China's yuan, which extended recent losses. The currency has fallen more than 1.2 percent so far this week, putting it on track for its largest weekly loss since 1992.

Government economists and advisers involved in internal policy discussions told Reuters that the central bank chose to widen the yuan's trading band since it was less risky than other reform options while also offering a way to hedge against further economic slowdown.

In commodity markets, gold added slightly to moves in the Asian session to trade at $1,339.44 an ounce, but remained on course to post its biggest weekly fall since late November.

Brent crude was up 47 cents at $106.92 a barrel, just off its intraday high.

RUSSIAN EXPOSURE

A bounce in most leading Asian and U.S. indexes overnight and early strength in Europe helped the MSCI World Index trade up 0.2 percent.

That gain was more than matched by the euro zone's blue-chip Euro STOXX 50 index, up 0.5 percent after a major options expiry.

Shares in mining companies - most outside the E-STOXX 50 - were among the biggest gainers after China earlier acted to smooth the way for companies to raise equity financing, talk of which had helped China shares enjoy their best day in six months.

The E-STOXX 50 was on course to snap a two-week losing streak and chalk up its best weekly performance of the year albeit in cautious trade given the ongoing concern about potential tit-for-tat sanctions between Russia and the West over its annexation of Crimea.

The lack of major violence in the region in recent days has helped a partial recovery in market sentiment, but fresh U.S. sanctions announced overnight and a weakening in the credit outlook for Russia from ratings agency Fitch kept traders wary, particularly about stocks with heavy sales there.

Russian stocks had moved off their lows by late morning but were still down nearly 2 percent.

"There hasn't been any military escalation, so the impact of the crisis on the overall European market is very small now, but on a more granular view, it's best to avoid all the stocks exposed to Russia, so it's a market for stock-pickers," a Paris-based trader said.

More broadly, though, investors in a Reuters poll said they saw gains of around 7 percent by the end of the year in European shares, buoyed by the peripheral euro zone, a positive outlook shared by analysts at Barclays.

"Valuations here still look heavily discounted, both relative to their own history and to credit markets. In addition, despite the ongoing strength of the euro, we see the potential for earnings and revenue growth to surprise to the upside in 2014 and 2015," they wrote in a note to clients. (Additional reporting by Wayne Cole, Blaise Robinson, Anirban Nag and Emelia Sithole-Matarise; Editing by John Stonestreet)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.