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GLOBAL MARKETS-Stocks off lows; dollar under pressure

Published 06/16/2009, 08:06 AM
Updated 06/16/2009, 08:10 AM
BARC
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* MSCI world stock index off two-week lows

* Dollar pressured by Russia comments on FX reserves

* German investor sentiment rise in June

By Ian Chua

LONDON, June 16 (Reuters) - Global stocks climbed off early lows on Tuesday led by European shares following data showing a surge in German investor sentiment, while the dollar stayed under pressure after Russia said the world needs new reserve currencies.

Modest gains in U.S. stock futures pointed to a steadier start on Wall Street, a day after its worst slide in a month.

Ahead of a meeting of the world's biggest emerging economies, Russian President Dmitry Medvedev told leaders of a summit of the Shanghai Cooperation Organisation the creation of new reserve currencies was needed to consolidate the international monetary system.

Market speculation has been rising that some countries may be looking to diversify reserves portfolios away from U.S. Treasuries in the future.

Investor appetite for riskier assets had taken a hit after disappointing U.S. regional manufacturing data on Monday prompted a selloff in U.S. stocks.

While central banks of Japan and Australia have reported signs of improvement in their economies, investors were looking for more definitive signs of recovery after recent economic indicators suggested the global slowdown may be easing.

A closely watched survey from the ZEW economic think tank showing German analyst and investor sentiment rose in June to its highest level since May 2006 helped restore some optimism.

"The good news about the ZEW index is that the assessment of current conditions improved slightly. That is supporting the market a bit," said Hans-Juergen Delp, equity market strategist at Commerzbank in Frankfurt.

"But it will only be able to breathe easy when hard data on the real economy confirm this. Until then, the market will remain nervous."

The MSCI world equity index recovered from an early fall to a two-week low to be little changed on the day at 246.20.

The FTSEurofirst 300 index of top European shares climbed 0.4 percent, reversing early losses after the German survey results and steadying from Monday's 2.5 percent decline, but benchmark emerging equities slid 0.4 percent.

Earlier, Japan's Nikkei lost 2.9 percent, while MSCI's measure of other Asian stock markets shed 1.1 percent.

U.S. crude gained $1.34 to $71.99, having earlier dipped below $70 a barrel.

DOLLAR DOWN

Demand for lower-risk government debt also ebbed as stocks tentatively recovered, pushing yields off lows. The 2-year euro zone benchmark government bond yield edged up to 1.62 percent from 1.6 percent earlier, but was still well off a 5-1/2 month high of around 1.83 percent set last Thursday.

The benchmark 10-year U.S. Treasury note yield stood at 3.74 percent, up from 3.715 percent late on Monday, but held below last week's eight-month highs of 4 percent.

Meanwhile, the dollar fell broadly after what were seen as dollar-negative comments from Russia, while the euro extended gains following the ZEW survey.

Against a basket of major currencies, the dollar fell 0.9 percent. It slipped 0.9 percent to 96.95 yen, after falling as low as 96.08 yen on EBS in early European trade.

The euro rose 0.8 percent to $1.3904 but the single currency slipped 0.1 percent against the Japanese unit to 134.81 yen.

"(The dollar's slide) underlines the likely sensitivity of the FX market to comments emerging from today's meeting," analysts at Barclays wrote in a research note.

"That said, it is unlikely that any concrete decision on an alternative to the USD as a reserve currency will reached," the note said, adding that any currency reaction to comments from the meeting would likely be short-lived. (Additional reporting by Naomi Tajitsu; Editing by Stephen Nisbet/Victoria Main)

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