Dollar, global stocks nudge higher as hurricane subsides

By Marc Jones

LONDON (Reuters) - Relative calm returned to world markets on Friday after a hurricane-force week that gave dollar/yen its biggest smashing since 2008, wiped billions off share prices and saw a stampede into top-rated government bonds and gold.

Japan's Nikkei (N225) fell 5.4 percent, having been shut during Thursday's global rout, so there was relief as the dollar and the yen steadied and London and Europe's other main stock markets <0#.INDEXE> (FTEU3) rose almost 2 percent.

The dollar was gradually clawing back some of the 4 percent it has lost to the yen this week, settling currency markets.

Oil prices climbed off 12-year lows [O/R] too and safe-haven gold , on for its best week in four years, and U.S. (US10YT=RR) and German government bonds all cooled after their sizzling last few days.

"All the market has been shattered," said ABN Amro chief investment officer Didier Duret.

"It has been driven by a lot of speculation. The strength of the yen has created discomfort too, but this is short-term," he added, saying the Bank of Japan could intervene in FX markets and that data in coming weeks should ease global recession worries.

The first reading of Q4 2015 euro zone and German GDP figures came in solidly, both with 0.3 percent growth quarter-on-quarter. But that was offset slightly by disappointing equivalent figures from Italy and a fall in industrial output.

Investors have been fleeing stocks and running to safe havens like bonds and gold, spooked by the direction of the world economy.

Only six weeks ago cheap oil was still expected to cushion the outlook for growth, but tumbling energy prices are upending the economies of oil-producing countries.

Increasingly too, investors are nervous about radical central bank policies like negative interest rates, which some fear could be doing irreparable damage to the banks by crushing profitability.

Bank stocks (SX7E) in Europe, where negative interest rates are most prevalent and are expected to go lower still, have been routed again this week and fallen almost 30 percent since the start of the year.

"I do not expect a collapse or major financial crisis like the Lehman crisis but it will take some time before market sentiment will improve," said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management.

WEAK WEEK

Despite the rise in European stocks, the overnight drop in Asia meant MSCI's 46-country All World index (MIWD00000PUS) was down for a sixth straight session and roughly 4 percent for the week.

The hardest hit has been Japan's Nikkei (N225) which fell 5.4 percent to a 15-month low on Friday and posted a weekly loss of 11.1 percent, its biggest since October 2008, as this week's sudden spike in the yen took most investors by surprise.

That surge in the yen has come as traders have all but canceled bets that the Federal Reserve will raise U.S. interest rates again this year, which in turn has seen the dollar nose-dive and rattled markets generally.

Longer-term U.S. debt yields kicked up 1.68 percent in European trading having been as low as 1.53 percent on Thursday, as investors locked in some of the huge gains of recent weeks. They started the year at 2.3 percent.

Fed fund futures <0#FF:> are pricing in the shallowest of shallow tightening paths. The market implies a rate of 45 basis points for the end of this year, 60 basis points at the end of 2017 and 90 by the close of 2018.

In Europe, German Bunds also saw profit-taking, though Portuguese bonds remained in the firing line having suffered their worst selloff in 2-1/2 years on Thursday on worries its new government may not be sticking to its bailout program.

Portuguese yields were up another 3.2 basis points at 4.26 percent and on track to post their biggest weekly jump since May 2012, the height of its debt crisis.

"We have a new government and its fiscal policy is in doubt in the market," said Jan von Gerich, fixed income chief analyst at Nordea.

"As long as the ECB is there to support Portugal, that limits the losses but if there is serious fiscal slippage and Portugal losses its final investment grade rating, forcing the ECB to drop them from the QE program, the losses could be huge."

Things were calmer for commodities. Brent and U.S. oil prices (CLc1) were both up roughly 5 percent from Thursday's near 13-year low, helped by comments from an OPEC energy minister sparking hopes of a coordinated production cut.

Gold dipped to $1,237.36 after soaring 4 percent the previous day and was still set for its best week in four years after the stock and FX market turmoil had sent investors into safe haven assets.