GLOBAL MARKETS-U.S. GDP data disappoints; stocks capped, euro up

Wed Jan 30, 2013 4:36pm GMT

* U.S. GDP miss puts downward pressure on stocks
    * Fed's statement awaited for clues on asset-buying program
    * Euro climbs, bund futures tick lower
    * Gold rise on weaker dollar

    NEW YORK, Jan 30 (Reuters) - A U.S. economic contraction in
the fourth quarter pressured stocks in Europe and the United
States on Wednesday even as it bolstered expectations the U.S.
central bank will continue its easy monetary policy and kept the
euro near a 14-month high. 
    Positive stock sentiment after strong results at Boeing and
Amazon.com and a strong private sector employment report
 was largely offset by the negative U.S. gross
domestic product report. Gold rallied on the drop in the dollar.
 
    The Federal Reserve is expected to maintain asset buying at
$85 billion a month when it concludes its policy meeting later
in the day and stick to its commitment to hold interest rates
near zero until unemployment falls to at least 6.5 percent from
the current 7.8 percent. 
    The GDP  data, which showed the world's largest economy in
the fourth quarter unexpectedly suffered its first decline since
the 2007-09 recession, bolstered that expectation. Gross
domestic product fell at a 0.1 percent annual rate after growing
at a 3.1 percent clip in the third quarter.
    The GDP data also overshadowed a third straight rise in
European economic confidence, an increase in European Central
Bank crisis loan repayments and a solid sale of five- and
10-year Italian bonds, which provided fresh evidence of the
recent improvement in the region. 
    "This is one chink in the armor of the recent
better-than-expected economic indicators. This will make people
start to get wary," said Wayne Kaufman, chief market analyst at
John Thomas Financial in New York. "If it turns out (Superstorm)
Sandy and the 'fiscal cliff' were the reasons for (the
contraction), people will shrug it off."
    The Dow Jones industrial average was down 4.07
points, or 0.03 percent, at 13,950.35. The Standard & Poor's 500
Index was down 1.03 points, or 0.07 percent, at 1,506.81.
The Nasdaq Composite Index was up 3.33 points, or 0.11
percent, at 3,156.99. 
    European shares were off 0.6 percent, although a
rise in Asian shares kept the MSCI world share index
 near a 21-month high.
    
    EURO HIGHER
    There had been optimism earlier in the day after several
encouraging reports on the European economy that caused the euro
 to break above $1.35 for the first time since December
2011.  The euro was last at $1.3572.         
    Expectations of easy U.S. monetary policy added to the
attractiveness of the euro. In recent years investors would buy
the dollar as a safer haven on bad economic data, but at least
on Wednesday, they saw the euro as a better bet. 
    "This is a source of weakness for the dollar because it
takes away the narrative that the U.S. economy is performing
better than the rest of the world," said Joe Manimbo, senior
market analyst at Western Union Business Solutions.
    Alongside the rebound in confidence in the euro zone, one of
the key drivers behind the currency's recent spike has been the
eagerness of banks to repay the crisis loans they took from the
ECB just over a year ago.
    Banks returned a larger-than-expected 137.2 billion euros of
those loans on Wednesday and also surprised analysts by trimming
their three-month funding, despite predictions they would use it
partly to restock their coffers.  
    The euro's rise against the dollar was also good for
bullion, with spot gold prices rising $17.75, to
$1,681.20.   
 
    CONFIDENCE RALLY
    The focus of the Fed decision will be on its outlook for the
economy and its bond buying program after it sounded slightly
more hawkish last month. 
    The benchmark 10-year U.S. Treasury note was
down 7/32, the yield at 2.0244 percent.
    Bund futures fell to session lows on Wednesday, with
investors taking the view that the contraction in the U.S.
economy was not going to have significant impact on the Fed's
policy moves.
    Bund futures fell as low as 141.36, down 46 ticks
on the day.
    China's promising economic growth forecast for 2013 raised
expectations for robust demand for fuel and industrial
commodities, underpinning oil prices.  
    Brent crude oil reached its highest level in three and a
half months as it passed $115 a barrel. It last traded at
$114.68. U.S. light sweet crude oil rose 5 cents, to 
$97.62 per barrel.
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