GLOBAL MARKETS-Shares rebound after steep decline, euro falls on low ECB repayments

Fri Feb 22, 2013 5:11pm GMT

* Low ECB loan repayment pushes euro to 6-week low
    * U.S., Europe shares, commodities rebound after sharp
losses
    * Italian elections at weekend in focus


    By Angela Moon
    NEW YORK, Feb 22 (Reuters) - Major stock markets rose on
Friday, recovering some of the previous session's sharp losses,
but the euro hit a six-week low on news that banks repaid less
than expected of their crisis loans from the European Central
Bank.
    Oil prices rose as evidence of improving business morale in
Germany helped bolster sentiment after two days of heavy losses.
    Wall Street also rebounded following two days of decline,
led by gains in technology stocks after better-than-expected
earnings from Hewlett-Packard. H-P shares jumped 10
percent to $18.83 by midday trade in New York.
    Risk-associated assets have been rattled this week by
suggestions the U.S. Federal Reserve could scale back its
monetary support sooner than expected and by weak euro zone data
that has dashed hopes of an early recovery by the recession-hit
region. 
    The S&P 500 had dropped 1.9 percent over the prior
two sessions, its worst two-day drop since early November,
putting the benchmark index on pace for its first weekly decline
of the year. Still, the index is up nearly 6 percent for the
year and managed to hold the 1,500 support level despite the
recent declines.
    In a sign that some euro zone banks may still need support,
the ECB said just over 61 billion euros ($81 billion) of the 530
billion it lent at the height of the bloc's crisis last year
will be repaid when banks get the first opportunity next week.
 
    That was well below the 130 billion euros expected by
traders and means there remains more than enough cash in the
banking system to keep downward pressure on money market rates.
    The euro dropped to a six-week low against the dollar.
    "This means that the confidence is still not there and
that's a negative for the euro," said Sebastien Galy, currency
strategist at Societe Generale in New York. "I don't think euro
zone banks are confident that they can get cheaper loans
elsewhere."
    A report from the European Commission released on Friday
that forecast the euro zone economy will contract again in 2013
and caution ahead of an Italian election this weekend also
weighed on the euro, which fell for a third straight session.
 
    But stocks fared better in Europe as investors looked to
take advantage of the previous session's sharp sell-off, though
traders cited some caution given weekend elections in Italy.
    The FTSEurofirst 300 closed up 1.2 percent at
1,165.43, having sunk 1.5 percent on Thursday.
    The Dow Jones industrial average was up 62.57 points,
or 0.45 percent, at 13,943.19. The Standard & Poor's 500 Index
 was up 6.90 points, or 0.46 percent, at 1,509.32. The
Nasdaq Composite Index was up 16.71 points, or 0.53
percent, at 3,148.20. 
    MSCI's world share index was up 0.4 percent.
    
    EURO HITS 6-WEEK LOW
    The euro fell as low as $1.3156, its lowest since
Jan. 10, retreating from a session high of $1.3244 touched after
a better-than-forecast German Ifo survey suggested a brighter
outlook for the euro zone's largest economy. 
    The currency was on pace to close lower for a third straight
week.
    Some strategists said they expected the euro to grind lower
ahead of the Italian election, although it should find support
around $1.3040, near the Jan. 10 low of $1.3037.
    Investors were wary about the risk of a fragmented Italian
parliament, which could hinder the euro zone's third-largest 
economy from fighting its longest recession in 20 years. 
    Market participants in general are taking a more defensive
position -- betting on the euro's downside -- in case of an
adverse outcome in Italy. The result of the vote is not expected
until next week.
    Bob Lynch, chief currency strategist at HSBC in New York, 
said he expects a weaker euro due to numerous technical factors.
    "The downward shift in momentum indicators, the break  below
the July 2012 uptrend, and the further shift in relative yield
spreads against the euro suggest to us that the risks remain on
the downside in the near-term," said Lynch.
    The euro and the dollar rose against the yen, although
strategists said the Japanese currency's three-month decline was
showing signs of losing momentum.
    Expectations the new Japanese government will take
aggressive easing steps in an attempt to revive the economy have
helped the yen fall steeply across the board since November.
    Like equities, commodities rebounded from Thursday's big
sell-off, which was driven by fears that the Fed may be edging
closer to ending its ultra-loose monetary policy, which has
flooded the markets with liquidity.
    Gold added about 0.3 percent to around $1,575.20 an
ounce but is on course for a weekly decline of almost 2 percent,
its second week in the red.
    Brent crude for April rose $1.26 per barrel to a
high of $114.79 before easing back to around $114.00. U.S. crude
 was at $92.90, up 6 cents, after hitting a six-week low
in the previous session.
    In U.S. Treasuries trading, 10-year notes were
trading 2/32 higher in price to yield 1.9653 percent, down
slightly from 1.97 percent late Thursday.