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GLOBAL MARKETS-Dollar hits six-year peak versus yen, ECB loan demand disappoints
September 18, 2014 / 8:37 AM / 3 years ago

GLOBAL MARKETS-Dollar hits six-year peak versus yen, ECB loan demand disappoints

* Dollar sweeps higher on diverging outlook for global rates
    * Japanese stocks at highest since 2008 as yen skids
    * Gold, oil prices pressured by rising dollar
    * Scottish independence vote looms, unionists just ahead
    * ECB fails to get expected take up as liquidity taps go
back on

    By Marc Jones
    LONDON, Sept 18 (Reuters) - The dollar hit its highest
levels in more than six years against the yen and four years
against other major currencies on Thursday as markets eyed the
widening policy split between the United States and other rich
nations.
   The U.S. Federal Reserve's outlook for rising interest rates
had already illustrated the diverging path from other advanced
economies but it was underscored even more firmly in Europe as
the ECB opened its liquidity taps again. 
    Lacklustre demand for the ECB's new ultra-cheap loans
boosted bets the bank will have to overcome reservations about
sovereign bond buying and sent the euro lower and lifted
European shares.
    Wall Street was expected to see the S&P 500 test its
recent record highs when trading resumes too, hot on the heels
of data showing a bigger-than-expected dip in U.S. unemployment
claims. 
    Two-and-a-half years on from the ECB's last injection of
long-term funding that pushed a trillion euros into Europe's
markets, banks this time took a much more restrained 83 billion
that was well below the 133 billion traders had been expecting.
    The launch of the scheme is the central plank of the ECB's
efforts to coax reluctant banks to lend more and fire up the
bloc's flagging economy. Alongside a yet-to-be-detailed asset
purchase programme, it hopes to hit the 1 trillion mark again.
    Berenberg's chief economist Holger Schmieding called it "a 
disappointing result for the ECB," and said "the low takeup ...
will likely strengthen the voice of those who argue that, to
really make an impact, the ECB would have to buy major amounts
of sovereign bonds."
    Some top ECB members have already hinted at bond buying and
the euro and German bond yields nudged down and European
shares climbed as bets on such a move gained traction.
    France's CAC40 and the Dax in Germany
jumped 0.7 and 1 percent respectively. It also relieved pressure
on London's FTSE as Scottish voters hit the polls for
what looked like being an extremely close vote on independence
from the rest of the United Kingdom.
    While the ECB is reluctant to overstep rules that prevent it
from financing governments by buying sovereign debt, it could do
so to ensure inflation - currently just above zero in the euro
zone - goes back to near 2 percent.     
    Spanish, Italian and Portuguese stocks and bonds, which have
all made huge gains over the last two years thanks to the ECB's
crisis efforts, were lifted as QE speculation bubbled.    
   
  
    FED GONE
    The Fed had maintained language on Wednesday suggesting that
rate hikes would not happen for a "considerable time," but it
also indicated its policymakers think it could raise borrowing
costs faster than expected when it starts moving. 
    The upshot was that the euro skidded to a 14-month
trough before stabilising in Europe, while gold hit an
eight-month low as the dollar swept higher across the board, a
move many investors have been itching to wager on all year.
    "The Fed clearly signalled overnight that although it is not
imminent, they are increasingly confident they will start
raising rates next year," said Lee Hardman, a strategist with
Bank of Tokyo-Mitsubishi UFJ in London.            
    Asia's reception had been more mixed, with MSCI's index of
ex-Japan Asian shares falling to 12-week lows, on the spectre of
rising U.S. rates and slower economic growth in China, though
Japanese shares  jumped as the yen buckled. 
    The dollar spent European trading almost 1.4 percent higher
against the yen than 24 hours earlier, at 108.67 yen as
the dollar index hovered at its highest since 2010.
    Futures markets <0#FF:> still lean more towards a Fed rate
move in June. But whatever the timing, U.S. rates do seem
certain to be heading higher while central banks in the euro
zone and Japan remain committed to super-easy monetary policy.
    Bond investors reacted with more calm than those in currency
markets, and nudged yields on the benchmark U.S. 10-year note
 up a modest 2 basis points to 2.62 percent.
    Still, a rise in two-year yields to 0.57 percent
widened their premium over German debt to 63 basis points, the
fattest margin since early 2007.
    
    SCOTS AWAY?
    With the Fed out of the way, the next big test for markets
will be the referendum on Scottish independence from the UK.
    Five surveys - from pollsters YouGov, Panelbase, Survation,
Opinium and ICM - showed support for independence at 48 percent,
compared with 52 percent for maintaining the union. It gave
sterling a mild lift and it was last at $1.6334, having
been as low as $1.6052 earlier in the month.
    The surveys also showed though that as many as 600,000
voters remained undecided, making the vote far too close to
call. Polling stations close at 2100 GMT and a result is
expected early on Friday. 
    In commodities, the rise of the dollar was a dead weight on
prices. Gold steadied at $1,223.60 an ounce after having
touched an eight-month trough of $1,216.01.
    Oil prices were further pressured by a government report
showing U.S. crude stocks rose sharply last week. Brent crude
 and U.S. crude were both down roughly 0.2 percent
at $98.80 a barrel and $94.30, respectively.

 (Additional reporting by Wayne Cole in Sydney; Editing by
Catherine Evans and Susan Fenton)

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