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GLOBAL MARKETS-Skittish investors lift Europe stocks, hit dlr

Published 09/08/2010, 07:03 AM
Updated 09/08/2010, 07:08 AM

* World stocks weaker

* Europe gains, Wall Street set for rise

* Dollar hits 15-year low versus yen

By Jeremy Gaunt, European Investment Correspondent

LONDON, Sept 8 (Reuters) - World shares were generally weaker on Wednesday but gaining in Europe, subject to another bout of on-again, off-again investor jitters, this time about European banks.

The dollar hit a 15-year low against the Japanese yen and Wall Street looked set to open higher after suffering more than 1 percent losses in the previous session.

Investors have spent most of the northern hemisphere's summer trying to buy risk assets such as stocks, but fleeing at the first hint of any trouble.

Wednesday's catalyst -- which took MSCI's main world stock index down 0.1 percent -- was a surge of concern about the European financial system.

There was little concrete to trigger this, although there are worries that Ireland's latest efforts to drag its banking system out of crisis point to deeper trouble that will spill over into other sovereigns.

One result was that European shares rebounded from earlier losses, leaving the pan-European FTSEurofirst up 0.3 percent for a 1.9 percent year-to-date gain.

The day's trading, however, reflected the skittishness that has dominated markets over the past few months.

"Profits generally from active traders have been pretty soft so they are trying to eke out a positive return but they are also wary of ending down for the year," said Jeremy Armitage, head of research at State Street Global Markets.

"They are in a bifurcated mindset. They can't afford to be long and wrong," he said.

Such an uncertain climate, meanwhile, would explain why the VIX volatility index remains at relatively benign levels -- implying little expectation of major moves.

Japan's Nikkei closed down 2.18 percent for a 14.4 percent year-to-date loss.

YEN, SWISSIE HIT RECORDS

The day's risk aversion pushed the yen to a fresh 15-year high against the dollar and helped the Swiss franc hit an all-time high versus the euro.

Persistent buying from investors seeking a temporary refuge in the yen is testing the Japanese authorities' pain threshold for strength in their currency.

"There's been an intensification in verbal rhetoric from Japan but I don't think they will intervene here. The serious intervention risk comes in below 80 yen," said Manuel Oliveri, currency strategist at UBS in Zurich.

Finance Minister Yoshihiko Noda repeated his warning that he would take decisive action if necessary.

The dollar fell as far as 83.34 yen, down 0.5 percent on the day and its cheapest since 1995 when it struck an all-time low around 79.75. It later recovered towards 84.00.

The euro was up slightly at $1.2715, having dived from $1.2870 on Tuesday and a three-week high of $1.2920 the day before.

But the euro fell to a record low versus the Swiss franc of 1.2766 francs on safe-haven buying.

Yields on euro zone government bonds were generally lower. (Additional reporting by Neal Armstrong; editing by Patrick Graham)

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