* Nikkei report on Summers as next Fed chief lifts dollar
* U.S. Treasury yields extend gains as Fed meeting awaited
* World stocks slip for second day, miners knocked by gold
* Gold at five-week low as Fed liquidity curbs weigh
By Richard Hubbard
LONDON, Sept 13 The dollar and U.S. Treasury
yields rose on Friday on a Japanese report that Lawrence Summers
would soon be named to head the Federal Reserve, as he would be
expected to favour a faster cutback in its stimulus programme.
The White House, however, said no decision had been taken.
While traders had doubts about the source of the report in
Japan's Nikkei business daily, analysts said its impact
highlighted the sensitivity of investors to the possibility of
Summers taking over at the Fed. Markets believe he might tighten
monetary policy faster than the other main candidate, Fed Vice
Chair Janet Yellen.
The dollar jumped as much as 0.3 percent against a basket of
major currencies and 10-year U.S. Treasury yields
touched a high of 2.957 percent, up from
Thursday's close of 2.905 percent. World shares edged lower.
U.S. stock index futures were little changed after the
White House denial. They pointed to a steady tone on Wall Street
ahead of data on retail sales and consumer sentiment that should
do little to change expectations that the Fed will cut back its
stimulus measures next week.
Japan's Nikkei business daily, citing unnamed sources, said
U.S. President Barack Obama would name the former Treasury
Secretary to take over from Ben Bernanke after the U.S. central
bank's policy meeting ending on Sept. 18, at which it is
expected to start reducing its massive monetary stimulus.
Asked about the story, a White House spokeswoman said Obama
had not made his decision about the Fed job.
"This morning the Summers story was the main event ...
markets know Yellen is very dovish, so any candidate other than
her would be dollar positive," said Lutz Karpowitz, currency
analyst at Commerzbank.
Investors generally expect the Fed to announce a tapering of
its monthly $85 billion of bond purchases next week in response
to signs of growing strength in the U.S. economy, but the pace
of future cutbacks is less clear.
"In the coming months given that the new Fed chairman starts
in January, the Summers effect, if it is announced, could be as
dominant (as the Fed's tapering decision)," said Mike Gallagher,
managing director of IDEAglobal.
Gallagher said the combination of a Fed tapering decision
next week and the prospect of Summers becoming chairman could
set U.S. Treasury 10-year yields on a course towards 3.5 percent
by year's end.
But a successful Summers nomination is far from certain, and
any appointment must be approved by the U.S. Senate.
European shares were little changed though mining
stocks were hit as metal prices suffered from the expected Fed
stimulus curbs. Data showing a slower rate of decline in euro
zone employment in the second quarter had little impact.
Earlier MSCI's broadest index of Asia-Pacific shares outside
Japan shed 0.8 percent, pulling further away
from a three-month high and on track for a second day of losses
after a 10-day winning streak - its longest run in six years.
The Asian gauge is still up 2.2 percent this week.
In Tokyo, the Nikkei share average bucked the trend
and edged up 0.1 percent on reports the government is
considering lowering the corporate tax rate next year as part of
efforts to soften the impact of a planned consumption tax hike.
In commodity markets, gold was on course for its worst week
in two months after heavy selling linked to expectations of the
Fed rollback and an easing of tensions over Syria.
"This is almost certainly the pricing in of the expectations
of QE tapering," Mitsubishi analyst Jonathan Butler said.
Gold, which was quoted at $1,311.75 an ounce, down 0.6
percent, has now lost around 19 percent this year.
Brent crude oil slipped to around $112.25 a barrel,
on course for its biggest weekly loss in three months as the
United States and Russia worked on a plan for Syria to surrender
its chemical weapons.
"Since concerns on a possible U.S.-led military strike
against Syria have eased, market participants are just waiting
for the outcome of next week's Fed meeting," said Masaki
Suematsu, Energy team manager at Newedge.