GLOBAL MARKETS-Shares rebound after hefty losses, euro falls after low ECB repayment

Fri Feb 22, 2013 3:59pm 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 paid back
less than expected of their crisis loans from the European
Central Bank.
    In commodities, oil prices rose as evidence of improving
business morale in Germany helped bolster sentiment after two
days of heavy losses.
    Wall Street rebounded after two days of decline, led by
gains in technology stocks after better-than-expected earnings
from Hewlett-Packard. Hewlett-Packard shares were up 8.5
percent at $18.55 in early morning 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 more quickly 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.
 
    It 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 were faring better in Europe as investors looked
to take advantage of the previous session's sharp sell-off.
    By early morning trade in New York, European shares on the
FTSEurofirst 300 were up 0.9 percent after a 1.5
percent drop in the previous session.
    In the U.S, the Dow Jones industrial average was up
41.09 points, or 0.30 percent, at 13,921.71. The Standard &
Poor's 500 Index  was up 4.92 points, or 0.33 percent, at
1,507.34. The Nasdaq Composite Index  was up 15.59
points, or 0.50 percent, at 3,147.08. 
    MSCI's world share index was up 0.3 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. 
    It was last down 0.1 percent on the day at $1.3178, with
market players reporting supporting bids around $1.3150-60.
    Europe's common 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 elections, 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 Italian vote is not
expected until next week.
    Bob Lynch, chief currency strategist at HSBC in New York
said he continues to expect a weaker euro due to a host of
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.
    The dollar rose 0.4 percent on the day to 93.46 yen,
keeping some distance from a 33-month high of 94.47 hit last
week. The euro edged up 0.3 percent to 123.18 yen.
    Some market players said the fact U.S. policymakers had not
particularly objected to yen weakness, which makes Japan's
exports more competitive relative to those of other countries,
meant the downtrend could continue.
        
    REBOUND
    Like equities, commodities enjoyed a rebound from Thursday's
big sell-off, which was driven by fears that the U.S. Federal
Reserve 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 $113.92 by 10:22
a.m. ET (1522 GMT) U.S. crude was at $92.76, down 10
cents, after hitting a six-week low in the previous session.
    Earlier in the day Asian shares also saw modest rebounds,
though many of the region's major indexes have recorded their
steepest weekly falls of the year.
    The MSCI's broadest index of Asia-Pacific shares outside
Japan was up 0.2 percent, though that was a
small recovery from the 1.5 percent fall on Thursday, and left
the index set for a weekly loss of about 0.8 percent.
    U.S. Treasuries were little changed with the 10-year notes
 trading unchanged in price to yield 1.97 percent.