GLOBAL MARKETS-Uneasy Iraq lull gives investors some breathing space

Tue Jun 17, 2014 7:43am EDT

By Jamie McGeever
    LONDON, June 17 (Reuters) - Merger and acquisition
speculation gave European stocks a shot in the arm on Tuesday,
while commodity and emerging market investors were somewhat
calmed by the absence of an escalation in the Iraq crisis
overnight.
    Oil and gold eased back as U.S. and Iranian officials, in a
rare sign of rapprochement, discussed the crisis on the
sidelines of a nuclear conference in Vienna although they both
ruled out military cooperation to face down the Sunni militant
onslaught that threatens to break up Iraq. 
    "There is a growing sense that we could see a stalemate
after the U.S. signaled that it was ready to talk with Iran,"
said Jim Reid, market strategist at Deutsche Bank.
    The slightly more benign geopolitical backdrop allowed
European equities to take their cue from M&A speculation.
British pharmaceutical group Shire led European shares
higher after Reuters reported Shire had hired investment bank
Citi as an adviser, expecting to receive takeover
approaches following a wave of deals in the sector.
 
    "Whenever you see some M&A, you have to buy the stock
market," said Toby Campbell-Gray, head of trading at Tavira
Securities.
    Healthcare companies have seen a wave of merger and
acquisition speculation in the past two months, and Shire's
stock has risen nearly 30 percent since mid-April.
    At 1115 GMT Europe's leading FTSEurofirst 300 index 
was up 0.1 percent at 1,385 points.
    Germany's DAX was up 0.2 percent at 9,906 points,
Britain's FTSE 100 was 0.1 percent higher at 6,759
points and France's CAC 40 was up 0.2 percent at 4,519
points.
    Brent crude oil futures fell 0.3 percent to $112.58 a barrel
, pulling further back from last week's nine-month high,
and gold fell 0.5 percent to $1,265 an ounce.
    
    UK INFLATION FALLS
    Investors' worries over Iraq, however, bubbled closely under
the surface as the possibility of the country breaking up
remains distinct following the seizure of a large swathe of
northern Iraq by militants from the Islamic State of Iraq and
the Levant (ISIL).
    This helped support traditional safe-haven government bonds
like U.S. Treasuries, with the 10-year yield at 2.59 percent
, flat on the day and off last week's peak of 2.662
percent.
    The immediate focus is on the Federal Reserve's monetary
policy statement on Wednesday, when the U.S. central bank is
expected to announce it will continue paring its bond purchase
programme.
    In currencies, the Australian dollar fell 0.4 percent to
$0.9361 after minutes of the Australian central bank's
June 3 meeting were more dovish than expected. 
    Sterling eased back from Monday's five-year high above $1.70
after British inflation fell to 1.5 percent in May, its lowest
in over four years, casting some doubt on whether Bank of
England policymakers will raise interest rates this year. 
    The pound slipped 0.1 percent to $1.6970, while the
euro was steady against the dollar at $1.3566 and the
greenback was up slightly against the yen at 102.02 yen.
    Elsewhere, emerging markets took stock of a 10 percent
plunge in Argentina's Merval stock market index on
Monday after the U.S. Supreme Court declined to hear the
country's appeal over its battle with hedge funds that refused
to take part in its debt restructurings.
    The move risks sending Argentina into a fresh sovereign
default. President Christina Kirchner said in an address to the
nation that Argentina will honour all its restructured debts,
but didn't say how.  
    Turkey's lira and South Africa's rand held firm against the
dollar .
    "Despite the negative country-specific emerging market
headlines, overall emerging market appetite remains fairly
healthy," said Deutsche Bank's Reid.
    This was despite tension in Ukraine showing no sign of
abating as Russia cut off gas to its neighbour in a dispute over
unpaid bills. That could disrupt supplies to the rest of Europe
and set back hopes for peace between the two former Soviet
countries. 

 (Additional reporting by Sudip Kar-Gupta; Editing by Susan
Fenton; To read Reuters Global Investing Blog click here;
 for the MacroScope Blog click on blogs.reuters.com/macroscope;
 for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
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