GLOBAL MARKETS-Shares rebound but euro falls to 6-week low on ECB loan repayment

Fri Feb 22, 2013 8:31pm GMT

* Low ECB loan repayment pushes euro to 6-week low
    * U.S., European shares, commodities rebound after sharp
losses
    * Italian elections in focus
    * HP lifts Wall St but S&P set for first down week of year


    By Angela Moon
    NEW YORK, Feb 22 (Reuters) - Global equity markets rebounded
on Friday, recovering some of the previous session's sharp
losses, but the euro hit a six-week low against the dollar on
renewed doubts about the health of the euro zone's financial
system.
    Oil prices edged up as evidence of improving business morale
in Germany helped bolster sentiment after two days of heavy
losses.
    U.S. stocks also rose, rebounding from two days of losses as
shares of Dow component Hewlett-Packard surged on strong
results. The stock jumped 14 percent to $19.52 and was the top
gainer on both the Dow and the S&P 500 indexes.
    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 dashed hopes of an early recovery in 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 on pace for its first weekly decline of
the year. Still, the index is up about 6 percent for the year
and managed to hold the 1,500 support level.
    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 news sent the euro to a six-week low against the dollar.
    "The smaller-than-expected payback of loans means the ECB's
balance sheet will shrink at a slower-than-expected pace," said
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington. It "further undermined confidence in the
state of recovery in the 17-member bloc."
    The data signaled that some banks still feel the need to
keep hold of the ultra-cheap emergency loans and means the ECB's
balance sheet will shrink at a slower pace. 
    A report from the European Commission 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 the 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 100.45
points, or 0.72 percent, at 13,981.07. The Standard & Poor's 500
Index was up 10.51 points, or 0.70 percent, at 1,512.93.
The Nasdaq Composite Index was up 23.87 points, or 0.76
percent, at 3,155.36. 
    MSCI's world share index was up 0.5 percent.
    
    EURO HITS 6-WEEK LOW
    The euro fell as low as $1.3144, its lowest since
Jan. 10, retreating from a session high of $1.3244 after the
German Ifo survey showed a big jump in business morale in
Germany, suggesting a brighter outlook for the euro zone's
largest economy.
    The euro was last down 0.2 percent at $1.3167, with market
players reporting supporting bids around $1.3150-60. Europe's
common currency was on track for third straight week of losses.
    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.
    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 to revive the economy have helped the
yen fall steeply across the board since November.
    Against the yen, the euro rose 0.2 percent to 123.10 yen
. The dollar rose 0.3 percent to 93.39 yen, not
far from a 33-month high of 94.47 hit last week.
    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.
    Brent April crude rose 57 cents to settle at $114.10
a barrel, while U.S. April crude added 29 cents to settle
at $93.13 a barrel.
    In U.S. Treasuries trading, the benchmark 10-year U.S.
Treasury note was up 2/32, the yield at 1.9653
percent.