Global stocks rise, euro drops as ECB holds rate

AFP, Friday 10 Jun 2011

Shrinking US trade deficit gives the dollar a boost

The euro fell against the dollar while European stock markets bounced back Thursday as the European Central Bank and Bank of England resisted pressures to hike interest rates.

News that the US trade deficit fell provided some support as the figures suggested exports were still doing well despite recent weaker economic data.

The European Central Bank kept its main interest rate at 1.25 per cent while signalling a rate hike next month. Meanwhile in London, the Bank of England left its key interest rate unchanged at a record low of 0.50 per cent.

European stock markets responded with a spurt, with London's benchmark FTSE 100 index of top shares closing up 0.82 per cent at 5,856.34 points.

In Frankfurt, the DAX rose sharply, up 1.41 per cent to 7,159.66 points while in Paris the CAC 40 gained 1.06 per cent to 3,878.65 points
Other European bourses also made ground.

However, the euro lost ground against the dollar amid continuing concern over the indebted Greek economy and how a second bailout package can be arranged.

In late London trading, the euro was changing hands at $1.4536, down slightly from $1.4575 on Wednesday.

Fresh strikes hit Athens Thursday and hopes for growth in its ailing economy were dashed as it came under increasing pressure from its international creditors to accelerate sluggish reforms.

With the government locked in marathon talks on a new wave of austerity measures, Greece's eurozone peers indicated that a second rescue deal was on the way, with sources talking of an overall package of around 90 billion euros, including Greek asset sales.

The common European currency was stable against its Japanese counterpart, at 116.42 yen against 116.41 the previous day, while the dollar was up to 80.08 yen from 79.87.

The drop in the euro, which had been trading higher earlier in the day "may also be a reflection of some disappointment that Trichet refused to give any signal as to rate rises beyond July," said Richard Driver, analyst at Caxton FX.

The dollar got a boost when data showed the US trade deficit shrank sharply in April, with exports hitting a record and imports falling.

The US Commerce Department reported the trade deficit in goods and services fell to a seasonally adjusted $43.7 billion from $46.8 billion in March. That was the smallest gap in the year to date.

But the politically sensitive shortfall with China widened to $21.6 billion, almost 20 per cent more than the March level.

In New York, the blue-chip Dow Jones Industrial Average gained 0.08 percent by 1600 GMT to stand at 12,167.65 points, with the the tech-rich Nasdaq Composite up 0.39 per cent to 2,685.94 points.

Asian shares closed mixed on Thursday following another weak display on Wall Street overnight and a tepid report on the US economy from the Federal Reserve.

A small upward revision for Japan's growth in the January-March period eased concerns on the Nikkei index slightly, while a late buying spree and a lull in the yen's strength lifted the market at the end of the day.

In the United States on Wednesday the Federal Reserve's latest survey on economic conditions in all its districts showed overall activity "generally continued to expand" since April.
But its Beige Book report warned there were trouble spots in the east and midwest of the country, where industrial growth and business optimism flagged.

The report came after Tuesday's downbeat assessment of the economy by Fed chairman Ben Bernanke, who said there was a "loss of momentum" in the already flaccid jobs market.

Adding to the woes, Fitch warned it could remove the United States' top credit rating if it fails to raise its debt ceiling to avoid a default.

In commodities trading on Thursday, gold prices remained at $1,537.75 an ounce.

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