Asian stocks run out of steam, euro vulnerable

A rebound in Asian stocks ran out of steam on Thursday, as worries over the widening impact of the euro zone crisis and the faltering US economy gnawed at investor confidence.

Last Updated: Sep 08, 2011, 09:23 AM IST

Singapore: A rebound in Asian stocks ran out of steam on Thursday, as worries over the widening impact of the euro zone crisis and the faltering US economy gnawed at investor confidence.

The euro edged down, and remained vulnerable to concerns that European efforts to contain a two-year-old sovereign debt crisis are flagging.

"Volatility still persists and the market is likely to continue to dance to the tune of policy risks involving the US and European economies," said Kim Hyung-ryol, a market analyst at Kyobo Securities in Seoul.

Global equities suffered their worst correction since 2008 in August, on fears of renewed recession in the United States and worries about Europe's widening crisis, and the MSCI All-Country World index remains 16 percent below its 2011 high, reached in May.

Japan's Nikkei rose 0.5 percent, paring earlier gains, while MSCI's broadest index of Asia Pacific shares outside Japan fell 0.2 percent.

Germany's top court on Wednesday rejected lawsuits aimed at blocking Berlin's participation in bailout packages for Greece and other heavily indebted euro zone countries, offering some temporary relief to global markets.

European stocks rose 3.1 percent and on Wall Street the S&P 500 rose 2.9 percent.

The euro, after jumping on the German court decision, eased on Thursday to around USD 1.4060, as traders awaited a European Central Bank rate-setting meeting later.

The ECB is the only major Western central bank to have raised rates since the global financial crisis, but is expected to signal a change in policy tack and halt its tightening cycle in response the sovereign debt crisis.

Market players will also be closely watching for any comment from ECB President Jean-Claude Trichet on the central bank's buying of Italian and Spanish bonds to force down yields, a policy that has deeply divided its governing council.

"If Trichet makes cautious remarks on bond buying, Italian and Spanish spreads could rise again and hurt investor sentiment," said Junya Tanase, chief strategist at JPMorgan Chase.

Federal Reserve Chairman Ben Bernanke is due to speak later on Thursday, at 1730 GMT, and President Barack Obama will outline to Congress his plans for reviving the faltering economy at 2300 GMT. With unemployment stuck above 9 percent, Obama will lay out a plan to spur job creation.

Many analysts expect Bernanke to hint at further easing steps to try to stimulate the economy, which could put downward pressure on the dollar.

The US currency was a little firmer against the yen at around 77.40, while the dollar index, which measures its performance against a basket of major currencies, edged up around 0.2 percent.

Gold rebounded 1 percent to trade around USD 1,835 an ounce, after tumbling 3 percent in the previous session.

The precious metal has hit a succession of records, most recently at USD 1,920.30 on Tuesday, driven by its appeal as both a safe haven in times of economic uncertainty and as a hedge against inflation, which some fear will be the eventual consequence of the ultra-loose monetary policies being pursued in much of the developed world.

"Concerns about economic growth in the United States and euro zone will keep supporting gold prices. Even though we may see liquidation repeatedly along the way, gold will rise toward USD 2,000," said a dealer at a Tokyo-based bullion house.

Oil was little changed, with US crude flat at USD 89.33 a barrel and Brent crude down 0.2 percent at USD 115.60.

Bureau Report