GLOBAL MARKETS-U.S. GDP data disappoints; euro and gold up

Wed Jan 30, 2013 6:02pm 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 climbs on weaker dollar

    NEW YORK, Jan 30 (Reuters) - U.S. economic contraction in
the fourth quarter bolstered expectations the Federal Reserve
will continue its easy monetary policy at the end of a meeting
later on Wednesday, keeping the euro near a 14-month peak
against the dollar and gold higher.  
    The central bank is expected to maintain asset buying at $85
billion a month when it concludes its policy meeting 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. 
    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 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.
    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 $1.3570.         
    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. 
    The euro's rise against the dollar was also good for
bullion, with spot gold prices up $16.21, or 0.97
percent, to $1679.60.

    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 6/32, the yield at 2.019 percent.
    Bund futures fell to session lows, 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.
    "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 edged up 6.81
points, or 0.05 percent, at 13,961.23. The Standard & Poor's 500
Index was down 0.13 points, or 0.01 percent, at 1,507.71.
The Nasdaq Composite Index was up 1.93 points, or 0.06
percent, at 3,155.59. 
    European shares suffered their biggest daily drop this month
with the pan-European FTSEurofirst 300 off 0.6 percent,
although a rise in Asian shares earlier in the global day kept
the MSCI world share index near a 21-month high.
    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 20 cents, or 0.2
percent, to  $97.77 per barrel.