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GLOBAL MARKETS-US dollar strengthens; gold dips on IMF sale

Published 02/18/2010, 02:03 AM
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* Euro haunted by sovereign debt fears, near 9-mth low

* Gold slides after IMF says will sell 191 tonnes

* Stronger dollar weighs on commodity, materials stocks

By Kevin Plumberg

HONG KONG, Feb 18 (Reuters) - The U.S. dollar rose against the euro on Thursday as poor growth prospects and Greece's fiscal deterioration hounded the euro zone single currency, while gold slid after the International Monetary Fund said it would sell more of its bullion holdings.

Major European stocks were expected to open between 0.1 percent to 0.2 percent higher, according to financial bookmakers, with the focus on corporate earnings after strong results from UK bank Barclays earlier this week.

Asian shares drifted lower as the stronger dollar weighed on commodity prices and resource-related stocks, despite modest gains on Wall Street on Wednesday on news that U.S. housing starts in January hit a six-month high and on upbeat results at companies like Hewlett-Packard Co

Investors remained focused on the relative speed at which the world's economies were recovering from recession, punishing some laggards in Europe and rewarding those showing more confidence.

Several Federal Reserve policy makers, comfortable with the U.S. recovery, want to begin selling securities relatively soon to cut back massive help to the financial system, the central bank said overnight.

"The U.S. took a very aggressive response to the crisis (monetary, bank recapitalization, fiscal) and while there are costs to these measures, they will likely result in a faster exit from the recession," Michael Hasenstab, senior vice president and co-director of Franklin Templeton's fixed income group, told Reuters in a chat room interview.

Hasenstab, who manages some $60 billion in assets, said he was underweight the euro and has no exposure to Greek bonds.

The U.S. dollar was up 0.3 percent against a basket of six major currencies

The euro fell 0.3 percent against the U.S. dollar to $1.3563, within striking distance of last week's 9-month low of around $1.3530

The spread of Greece's 10-year government bond yield over the euro zone has narrowed some in February, though it remains 80 basis points wider since 2010 began, reflecting greater demand among investors to be compensated for the risk of owning the debt.

Still, some investors have spotted some value in the relatively high yields of Greek bonds.

"While the fundamentals are clearly challenged across peripheral Europe, we find the current relative value opportunity offered by Greek debt compelling," said Mike Zelouf, director of international business with Western Asset, a fixed income asset manager with $482 billion under management.

GOOD AS GOLD

The planned gold sales by the IMF pressured the Australian dollar though the institution said the selling would be spread over time. Australia is the world's fourth largest gold producer.

The Australian dollar sagged 0.4 percent to US$0.8955 near the middle of a $0.9400 to $0.8575 range carved out in the last four months.

Gold slid 0.3 percent to $1,102.20 an ounce after peaking at $1,126.85 the highest since Jan. 20, before the IMF news on gold sales. The precious metal has posted gains in every year since 2000 and last year surged 25 percent.

In equity markets, the Nikkei share average closed up 0.3 percent at a two-week high as a weaker yen helped exporters' stocks, though profit taking capped gains after the index booked its best rise in more than two months in the previous session.

The MSCI index of Asia Pacific stocks outside Japan slipped 0.4 percent, weighed down by a 1.1 percent fall in the materials sector. But trading volumes across Asia were thin because of Lunar New Year holidays this week.

Despite some portfolio capital outflows from the region in the last several weeks, Asia ex-Japan equities are expected to outperform U.S., euro zone, Australian and Japanese markets this year, a Towers Watson survey showed.

Returns in Asia ex-Japan this year are expected to be 14.5 percent, according to the poll of 98 investment managers who handle $13.3 trillion in assets under management.

The stronger U.S. dollar weighed on commodities and materials stocks, with U.S. crude futures down 0.5 percent to $76.95 a barrel.

The Reuters-Jefferies CRB index of 19 commodity futures is down 3.4 percent so far this year. (Editing by Kim Coghill)

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