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GLOBAL MARKETS-World stocks rise, dollar treads water

Published 10/11/2010, 11:39 AM
Updated 10/11/2010, 11:44 AM

(Adds U.S. trading)

* IMF inaction means emerging assets still in favor

* Stocks rise, dollar slips

* U.S. bonds, Japan markets closed for holidays

By Jeremy Gaunt and Al Yoon

LONDON/NEW YORK, Oct 11 (Reuters) - World stocks rose and the dollar was flat on Monday as investors bet on further asset buying by the U.S. Federal Reserve and a continuation of global currency flows toward emerging markets.

The dollar slid to a 15-year low against the yen and weakened slightly against the euro . Japanese markets and U.S. bond markets were closed for holidays.

Finance policymakers meeting over the weekend in Washington produced no quick fix for global economic imbalances, providing no barriers to the cheap money trade of selling dollars to buy emerging market assets and commodities.

Reflecting this, MSCI's main emerging market stock index <.MSCIEF> climbed half a percent for a nearly 12 percent year-to-date gain. JPMorgan's EMBI+ index <11EMJ> showed investors snapping up emerging market government debt.

Both moves are continuations of massive flows into emerging markets in a bid for the faster growth and higher yields than are available in developed economies.

EPFR Global said in its latest flow report at the end of last week that emerging market equity fund flows had hit a 33-month high and emerging bond funds had absorbed more than $1 billion in a week.

"It is increasingly being seen as the trade for all seasons," said David Shairp, global strategist at JPMorgan Asset Management.

Friday's U.S. jobs data, which was worse than expected, raised expectations that the Fed will buy more assets under its quantitative easing (QE) program, essentially trying to pump up the ailing U.S. economy by printing more money.

This generally drives investments out of dollar assets and toward higher-yielding ones.

But Shairp reckons many in the markets also see the flow patterns continuing even if there is no new QE, with investors betting on higher growth abroad than in the U.S. economy.

The Dow Jones industrial average <.DJI> was up 4.88 points, or 0.04 percent, at 11,011.36. The Standard & Poor's 500 Index <.SPX> was up 1.04 points, or 0.09 percent, at 1,166.19. The Nasdaq Composite Index <.IXIC> was up 4.95 points, or 0.21 percent, at 2,406.86.

EUROPE ALONE

In Europe, the FTSEurofirst 300 <.FTEU3> gained 0.3 percent -- taking the year-to-date gain up to around 2.5 percent -- as traders anticipated the U.S. stimulus.

"The market is clearly expecting quantitative easing and has priced that in," said Richard Lacaille, global chief investment officer at State Street in London. "The (U.S.) data continue to be as expected, part of a slow recovery."

Attention was also building on the upcoming earnings season. Intel and JP Morgan are among companies reporting later in the week.

In currency markets, the dollar recouped some losses but was trading little changed against a basket of major currencies <.DXY>. Traders booked gains on bearish dollar bets.


Graphics on the global currency trade, see: http://r.reuters.com/gez77p

http://r.reuters.com/jec96p


The dollar and equities have been inversely correlated as investors leave the perceived safety of the greenback to put money into equities. For details, see [ID:nN11137639]

"We've seen it for a while, since mid-September, the dollar sliding in value on the high likelihood that we will see more quantitative easing coming out of the Fed," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

"And we will continue to see that expectation until the Fed actually does something and states that they are done, at least, for the time being."

The euro fell 0.25 percent to $1.3905, while the dollar rose 0.13 percent to 82.01 yen.

The dollar earlier sank as low as 81.36 yen, triggering another round of speculation about possible intervention by Japan to weaken the yen. (Additional reporting by Neal Armstrong and Brian Gorman in London; Editing by Dan Grebler)

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