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GLOBAL MARKETS-Dip after run-up; euro falls on German warning

Published 03/27/2009, 09:05 AM
Updated 03/27/2009, 09:40 AM
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* MSCI world equity index eases after recent run-up

* Euro falls, dollar up on German finmin warning

* Oil backs down from 2009 high on profit-taking

By Sebastian Tong

LONDON, March 27 (Reuters) - Global shares dipped on Friday, pausing for breath at the end of a week that saw them gain 6 percent on hopes of economic recovery while the euro extended losses after Germany warned that fiscal irresponsibility in Europe threatened the common currency.

Oil fell below $54 a barrel on profit-taking after touching a 2009 high but the dollar rose, with sentiment bolstered by Thursday's Wall Street rally which saw the Nasdaq advancing to positive territory for the year-to-date.

"We have a good chance that we are in the process of building a bottom. We can crumble back down and test the lows even, but a good chance is that we will not make new lows," said Petra Von Kerssenbrock, a Commerzbank technical analyst in Frankfurt.

MSCI world equity index was 0.6 lower by 1220 GMT, having risen some 6 percent this week to its highest level in six weeks.

The pan-European FTSEurofirst 300 index of top shares waned 0.6 percent, weighed down by banks and energy majors, but remaining on track for its third straight week of gains -- the first time in nearly 12 months.

Emerging stocks, which are up some 5 percent this year, eased 0.7 percent lower.

Emboldened by recent U.S. initiatives to jumpstart stalled bank lending, investors have seized on less dire than expected economic data from around the world as tentative signs of a global economic recovery.

Both France and South Korea posted fourth quarter 2008 economic contractions that were smaller than their initial official forecasts.

The United States released revised fourth-quarter GDP data showing the economy shrinking at its fastest pace since 1982 but its 6.3 percent contraction was better than the consensus forecast of negative 6.5 percent in a Reuters survey of economists.

"In spite of the underlying concerns that we are in the midst of a bear market rally, the markets continue to perform robustly. It is noticeable that venerable banks such as UBS are claiming that institutional clients are now buying more stocks than they are selling," said Chris Hossain, senior sales manager at ODL Securities.

EURO WARNING

The dollar reversed early day losses to climb over 1 percent against a basket of major currencies.

The greenback was also supported by comments from senior Japanese and Russian officials that the dollar's status as global reserve currency would unlikely be discussed at next week's Group of 20 leaders' meeting in London.

The euro hit session lows versus the dollar after Germany's Peer Steinbrueck said the single currency would come under threat if euro zone members did not adhere to their shared agreement guiding their fiscal policy.

The minister's warning came amid the release of weaker than expected euro zone industrial orders and German inflation.

The European Central Bank is expected to cut interest rates by 50 basis points to 1 percent next Thursday and may also announce further liquidity boosting measures.

Meanwhile, U.S. crude oil fell by more than $1 a barrel as poorer-than-expected Japanese retail sales figures and U.S. jobless data encouraged profit-taking.

Oil has gained more than 34 percent since mid-February on rallying stock markets and tightening supply from the Organisation of Petroleum Exporting Countries (OPEC).

Emerging sovereign debt spreads were 1 basis point wider to trade at 623 bps over U.S. Treasuries, while the June bund futures traded up 45 ticks.

U.S. Treasury debt prices edged higher with the market awaiting the second purchase of government bonds by the Federal Reserve later in the day. (Additional reporting by Farah Master and Atul Prakash; Editing by Andy Bruce)

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