* Dollar reverses gains against euro and yen
* Data shows surprises weakness in labour and housing
* European shares flat but still near multi-year highs
* Japanese growth spurt 'proves Abenomics is working'
By Richard Hubbard
LONDON, May 16 Surprisingly weak U.S. housing
and labour market data erased the dollar's gains against the
euro and the yen on Thursday and pointed to a lower start on
The number of Americans filing new claims for unemployment
benefits climbed last week at the fastest pace in six months, a
worrisome sign for the economy which has been hit by government
In other data, U.S. consumer prices fell in April by the
most in more than four years on tumbling gasoline prices, while
ground-breaking for new U.S. homes plummeted more than expected
from a near five-year high.
The dollar dropped 0.2 percent against the euro to trade at
around $1.2908. It had been flat at $1.2884 just before
the data. It also traded at 102.18 yen, down 0.1 percent
on the day reversing a 0.3 percent gain earlier.
The dollar's earlier strength came on talk of a tapering
back in asset buying by the U.S. Federal Reserve, fuelled by
Philadelphia Fed president Charles Plosser, who stressed the
need for a slowdown in quantitative easing at a speech in Italy.
"Any signs of a tapering in quantitative easing by the Fed
is able to have profound impact on market psychology and
pricing," said Stephen Gallo, European head of FX strategy at
BMO Financial Group.
S&P 500 futures fell 1.9 points after the data and
were above fair value, a formula that evaluates pricing by
taking into account interest rates, dividends and time to
expiration on the contract.
Dow Jones industrial average futures fell 16 points
and Nasdaq 100 futures rose 9 points.
MSCI's world equity index was flat but close
to its best levels since mid-2008 after gains of nearly 11
percent this year.
Earlier expectations of more central bank stimulus in the
euro zone - reinforced by data showing annual inflation was a
below-target 1.2 percent in April - kept European shares near
The FTSE Eurofirst 300 index of top European shares
was also little changed at 1,246.50, near to a five-year peak.
"Markets have rallied hard recently and in a low interest
rate environment and with quantitative easing measures in place,
equities are still the place to be," Jawaid Afsar, sales trader
at SecurEquity, said.
The sharp drop in annual euro zone consumer inflation was
led by lower world oil prices, but the data also highlighted how
households are not spending and companies are not investing,
dampening hopes for a recovery a day after data showed the euro
zone was mired in its longest ever recession.
The main German bond futures contract was 7 ticks higher at
144.75 after the inflation data.
In Asia MSCI's broadest index of Asia-Pacific shares outside
Japan dipped 0.3 percent and Tokyo's Nikkei
index ended down 1 percent as markets corrected following a
rally on news that Japan's economy grew 0.9 percent in the first
The Nikkei hit a 5-1/2-year high earlier in the session
after the data and is up a hefty 44 percent for the year to
Japan's growth rate was the quickest pace in a year and
suggested the economic stimulus programme launched by Prime
Minister Shinzo Abe and the central bank was having an impact.
"There's now proof that Abenomics is working and that the
economy is on a solid footing." said Yoshiki Shinke, senior
economist, Dai-Ichi Life Research Institute in Tokyo.
The growth in the world's third-largest economy contrasts
with an extended recession in the euro zone, worries about the
health of China's recovery and follows a surprise drop in U.S.
industrial output for April.
The uncertain outlook has weighed on commodity markets,
which were mostly weaker again on Thursday.
Copper, seen as an economic bellwether because it is used
extensively in construction and power cables, was down 0.5
percent at $7,163 a tonne, on track for a 3.3 percent
drop this week and a fall of 10 percent so far this year.
Gold dropped for the sixth consecutive day, sliding as much
as 1.6 percent to a low of $1,369.29 an ounce before paring some
of the losses to trade down 1.2 percent at $1,375.50.
"Investors appear to be tired of gold as a safe haven as
they anticipate the end of those loose monetary policies,
possibly by the end of this year or maybe early next year,"
Mitsubishi analyst Jonathan Butler said.