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GLOBAL MARKETS-Stocks, commodities retreat while dollar flat

Published 08/04/2009, 07:02 AM
Updated 08/04/2009, 07:06 AM
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* MSCI world equity index down 0.3 percent at 270.90

* Oil down 1.3 percent; dollar flat, govt bonds up

* FTSEurofirst 300's P/E ratio at highest since Aug 2007

By Dominic Lau

LONDON, Aug 4 (Reuters) - Global stocks and commodity prices pulled back on Tuesday as investors paused to assess the state of the economy after pushing them higher in the past two weeks, while the U.S. dollar was broadly flat.

The MSCI world equity index slipped 0.3 percent after hitting its highest level in nearly 10 months on Monday.

Better-than-expected second-quarter corporate earnings and improving economic data in major economies have helped push global equities, measured by MSCI, up in 13 out of the past 16 sessions.

BNP Paribas, France's biggest bank by market value, on Tuesday posted higher second-quarter profit, and expressed some optimism over prospects for financial markets, while there were signs of improvement in Swiss bank UBS's underlying performance .

"The market is taking a breath as equity markets have gained very strongly over the past weeks," said Postbank equity strategist Heinz-Gerd Sonnenschein.

BNP shares added 0.3 percent but those for UBS sank 5.3 percent. The DJ STOXX European banks index lost 1 percent.

Weaker commodity prices also weighed on the pan-European FTSEurofirst 300 index, which was down 0.8 percent.

The European benchmark, which has rallied nearly 45 percent since its March floor, traded at 12.5 times expected earnings as of Monday, the index's highest price-to-earnings ratio since August 2007, according to Thomson Reuters data.

U.S. stock index futures dropped 0.6-0.7 percent, pointing to a weaker opening on Wall Street.

"Recovery hopes propelled markets higher yesterday, not least on the back of stronger-than-expected global business surveys," Barclays Wealth said in a note. "Yet stocks no longer look undervalued relative to fundamentals to us, and the speed of improvement in the latter could disappoint some."

Prices at euro zone factory gates logged their biggest annual fall on record in June, increasing the risk of deflation.

OIL DROPS

Oil fell below $71 a barrel, paring three days of gains, as expectations of a rise in U.S. crude inventories offset optimism from positive U.S. and Chinese manufacturing data.

"For the time being, it does not make much sense to go short in energy ... as the upside momentum is very strong," broker MF Global said in its daily report.

"Crude oil markets have yet to reach severely overbought levels," it said, adding "Investors seem to be betting on a V-shaped recovery."

Metal prices also eased, with copper down from a fresh 10-month high.

The U.S. dollar was flat on a trade-weighted basis against a basket of major currencies but it slipped 0.6 percent to 94.69 yen.

The Australian dollar, meanwhile, pared gains from a near 10-month high against the dollar after the Reserve Bank of Australia kept interest rates unchanged and abandoned its easing bias, supporting expectations of a rate hike by year-end.

Yields on the benchmark 10-year U.S. Treasuries were down 2 basis point at 3.616 percent, while the 10-year euro zone benchmark bund yield was down 3 basis points at 3.316 percent. (Additional reporting by Christoph Steitz in Frankfurt and Christopher Johnson in London; Editing by Andy Bruce)

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