February 12, 2013 / 4:35 PM / in 5 years

GLOBAL MARKETS-Yen rallies sharply following G7 comments

* G7 statement and later remarks roil yen
    * G7 official: Group statement was "misinterpreted"
    * Equities marginally higher ahead of Obama speech
    * Markets shrug off North Korea nuclear test

    By Marc Jones and David Gaffen
    NEW YORK/LONDON, Feb 12 (Reuters) - The yen swung wildly on
Tuesday, reversing the previous day's late sell-off against
dollar and the euro after an official with the Group of Seven
said it is worried about excess moves in the Japanese currency. 
    World stock markets were modestly higher, led by European
shares. U.S. indexes were little changed, with the S&P 500 index
just a few percentage points away from all-time highs.
    The G7, in a statement, urged countries to refrain from
competitive devaluations, saying it remained committed to
"market-determined" exchange rates. This was in reaction to
weeks of concern that the new Japanese government's monetary
easing policy, which has also weakened the yen, could trigger
far-reaching currency wars.
    However, the market interpreted the statement as a sign that
the G7 supported Japan's moves, prompting an official from a G7
nation to say later that the group "is concerned about
unilateral guidance on the yen." 
    That statement - meant to clarify the communique - sparked a
rally in the yen against the dollar and euro. 
    "Having asserted on Sunday evening that G20 would seek to
'calm' markets over talk of currency wars, the first ad-hoc
attempt to do so this morning has been a dismal failure," said
Richard Gilhooly, analyst at TD Securities. "Rather than calm
the markets, the poorly communicated statement has significantly
raised volatility and now we have to wait to see the actual
outcome of G20 on the weekend." 
    The dollar was down 1.1 percent against the yen at 93.28,
while the euro fell 0.7 percent to 125.56. The dollar on Monday
rose to 94.465 yen, highest since May 2010. 
    The G7 must go into this weekend's G20 meetings forcefully
pressing major emerging economies to adopt flexible foreign
exchange rates, Bank of Canada Governor Mark Carney said on
    Tokyo is likely to come under serious pressure when G20
finance ministers and central bankers meet in Moscow at the end
of the week, not least because the United States is employing
similar policies.
    Japanese Finance Minister Taro Aso welcomed the statement,
saying it recognized Tokyo's policy steps were not "aimed at
influencing currency markets."
    U.S. Treasury official Lael Brainard said on Monday that
while competitive devaluations should be avoided, Washington
supported Tokyo's efforts to reinvigorate growth and end
    MSCI's global share index was up 0.4
    With little in terms of significant data, U.S. markets were
focused on the evening's State of the Union address by President
Barack Obama for any signs of a deal to avert automatic spending
cuts due to take effect on March 1.
    U.S. stocks were mixed.  The Dow Jones industrial average
 was up 31.59 points, or 0.23 percent, at 14,002.83. The
Standard & Poor's 500 Index was up 1.45 points, or 0.10
percent, at 1,518.46. The Nasdaq Composite Index was
down 2.20 points, or 0.07 percent, at 3,189.81.
    Financial markets showed a muted reaction to the news that
North Korea has conducted a nuclear test and said it would never
bow to U.N. resolutions. 
    A nuclear test monitoring agency in Vienna said the blast
was double the size of North Korea's last test in 2009. NATO
condemned the move, calling it an "irresponsible act" that posed
a grave threat to world peace.    

    The euro, the main riser among major currencies over the
last few months as confidence in the euro zone has rebounded,
fell after the G7 statement but was quickly on the rise again
after Switzerland's central bank said it was ready take further
steps if needed to keep a lid on the franc. 
    The euro was up 0.4 percent at $1.3460.
    European shares rallied. London's FTSE 100 gained
0.7 percent, Paris's CAC-40 was up 0.8 percent and
Frankfurt's DAX rose 0.2 percent.
    In European bond markets, Spanish and Italian bonds inched
up as domestic buyers took advantage of a recent sell-off. But
the recovery looked fragile, given political uncertainty in both
    Spain sold 5.6 billion euros of 6- and 12-month debt,
beating the top end of the target amount, but paid a higher
yield on the longer-term paper as a political corruption scandal
weighed on shaky confidence. Italy's debt costs also rose as it
sold 8.5 billion euros of one-year paper. 
    The benchmark 10-year U.S. Treasury note was
down 3/32, the yield at 1.9752 percent.
    Brent oil rose toward $119 a barrel, copper edged
up, while spot gold stayed near a one-month low.

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