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Stress tests, Ebola cool global stocks after best week of year

Published 10/24/2014, 05:24 AM
© Reuters Tokyo Stock Exchange staff members work at the bourse at TSE in Tokyo
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By Marc Jones

LONDON (Reuters) - World stocks dipped on Friday, as European bank stress test results due at the weekend and New York City's first case of Ebola prompted investors to lock in profits after the best week for shares in well over a year.

A doctor who treated Ebola patients in West Africa became the first person to test positive for the virus in America's largest city, raising fresh fears about its spread.

Europe's main bourses in London, Frankfurt and Paris all opened 0.5 percent in the red and U.S. stock futures were down as investors moved to safe-haven assets such as the yen and U.S. and European government bonds.

"It's down to a combination of profit taking and a bit of uncertainty about the weekend's stress test results," said David Madden, a market analyst at IG index.

"We have already seen a spike up in Greek government bond yields recently so the euro zone crisis has not gone away, and after this week we are back on a 9,000 level for the DAX so people are happy to take a bit of money off the table."

The euro also slipped on caution about the banking tests. It hit $1.2638, having fallen for much of the week after European Central Bank insiders told Reuters the ECB was drawing up plans for a corporate bond purchase program.

Follow an intense, year-long review, the euro zone's 130 biggest banks received the ECB's final verdict on their finances on Thursday, with official results to be published on Sunday.

Juergen Fitschen, co-chief executive of Deutsche Bank and president of the BdB association of German banks, offered a hint on Thursday, saying the results probably gave his country's banks a clean bill of health. Ireland's permanent tsb is so far the only failure that has been exposed.

BEST WEEK OF YEAR

The Ebola fears saw S&P 500 mini futures fall as much as 0.7 percent, slipping from two-week highs hit on Thursday on budding optimism from corporate earnings and the global economy.

With 177 of the S&P 500 companies having posted third-quarter results, 69.5 percent have beaten expectations, better than the 67 percent beat rate over the past four quarters, and higher than the 20-year average of 63 percent, Thomson Reuters data showed.

MSCI's All-World index which spans bourses in 45 countries, is up over 2.6 percent for the week, its strongest performance since July last year. Gains in Europe were slightly less but still the best this year.

There was also focus on Russia and Ukraine, with Russia facing a rating review from Standard & Poor's later and elections taking place in Ukraine on Sunday.

The rouble was at a new record low and stocks were in the red ahead of the S&P review, which could Russia's credit rating cut to 'junk'. Moscow will be hoping its solid finances prevent a second downgrade from a major rating agency in as many weeks.

"I would assume that it is too early to revisit the ratings. But this is my personal opinion. The rating agencies work according to their methodologies," influential former Russian finance minister and outspoken policy critic, Alexei Kudrin, told Reuters at an event in London this week.

Meanwhile more political stability in Ukraine could aid the European economy, which has suffered from the fall in trade with Russia on tit-for-tat sanctions between the West and Moscow.

"I suspect one often overlooked reason for the market's rebound since the middle of this week was signs of easing tensions between Russia and Ukraine," said Soichiro Monji, chief strategist at Daiwa SB Investments.

President Petro Poroshenko's bloc holds a big lead ahead of Sunday's poll in Ukraine, but populist Oleh Lyashko's Radical party could also make a strong showing.

If so, Poroshenko may have the awkward task of seeking support from a politician who has been sharply critical of his peace plan and contacts with Russian President Vladimir Putin.

An election that pro-Russian separatists will hold early next month must also be navigated.

Commodities have also enjoyed a small rebound this week following a wretched recent run on fears about slowing global growth and oversupply in individual markets.

Brent oil was slightly softer at $86 a barrel on Friday as risk appetite took a hit from the news of Ebola in New York but it was set for its first gain in five weeks. Copper was heading for only its second rise in nine weeks.

© Reuters. A man walks past the London Stock Exchange in the City of London

Oil markets had risen sharply on news that crude supplies to the market from Saudi Arabia, the world's top oil exporter, fell to 9.36 million barrels per day (bpd) in September, down 328,000 bpd from August, according to an industry source.

(Editing by Catherine Evans)

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