Reuters: US Dollar Report: GLOBAL MARKETS-Stocks, euro wobble, recover after Fed 'Twists' again

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GLOBAL MARKETS-Stocks, euro wobble, recover after Fed 'Twists' again Jun 20th 2012, 18:00 Wed Jun 20, 2012 2:00pm EDT * Fed extends bond-buying program * U.S. stocks fall, then recover; some expected more * Signs of progress in Europe help euro, peripheral bonds By Steven C. Johnson NEW YORK, June 20 (Reuters) - Major stock indexes and the euro fell and then mostly recovered on Wednesday after the Federal Reserve extended its monetary stimulus program known as "Operation Twist" in an effort to keep the U.S. economic recovery from stalling. Analysts said investors had expected the U.S. central bank to extend its bond-buying program - dubbed "Operation Twist" - but said some were disappointed that it did not commit to more aggressive measures to boost growth in the face of slower U.S. hiring and a festering European debt crisis. Operation Twist involves the Fed selling short-term debt it holds to buy longer-term bonds in an effort to lower long-term borrowing costs. The Fed said it would expand its "Twist" program by swapping $267 billion in U.S. Treasury securities by the end of 2012. "Twist" had been set to end this month. "The decision stopped short of what people had hoped for, which was additional asset purchases," said Michael Woolfolk, senior currency strategist at BNY Mellon. John Canally, investment strategist and economist at LPL Financial, said "there were a lot of guys out there with the finger on the 'sell' button unless they saw balance-sheet expansion." Even so, that selling faded shortly after the Fed's announcement and U.S. stocks returned to near the break-even point or slightly higher. The Dow Jones industrial average was down 7.42 points, or 0.06 percent, at 12,829.91. The Standard & Poor's 500 Index was off 1.64 points, or 0.12 percent, at 1,356.34. But the Nasdaq Composite Index was up 2.75 points, or 0.10 percent, at 2,932.51. The MSCI index of global stocks rose 0.24 percent to 311.18. The euro rose 0.2 percent to $1.2706, drawing some support from reports that Greek conservatives had succeeded in forming a coalition government. The Fed "appears to be holding more firepower in reserve in case things get worse," said Allen Sinai, chief executive officer of Decision Economics in New York. The FOMC's statement noted that the central bank was "prepared to take further action as appropriate" to help the economy - a line that was not in its April statement. Fed Chairman Ben Bernanke will hold a press conference at 2:15 p.m. The 30-year U.S. Treasury bond initially rose on the Fed's announcement, but reversed course. The bond was down 8/32 to yield 2.75 percent, while the 10-year note fell 10/32 to yield 1.66 percent. U.S. crude oil for July delivery fell $2.42, or 2.88 percent, to $81.61 per barrel. The July contract will expire at Wednesday's close. "Crude futures have been following the stock markets, which have been strong in anticipation of the Fed move," said Mark Anderle, trader for TAC Energy in Dallas. "Now that the Fed's done it, we're going through the 'buy the rumor, sell the news' phase." SIGNS OF PROGRESS IN EUROPE Whatever disappointment markets felt for the Fed was tempered by signs that Europe's leaders were making progress on a long-term plan to resolve the continent's debt crisis. The FTSE Eurofirst 300 index of top European shares rose 0.5 percent after hitting a one-month high in the previous session. German government bond yields also retreated from record lows after European leaders said they were aiming to hammer out a plan next week to integrate the region's banking sectors. The United States and other nations have long urged Europe to embrace common banking supervision and deposit insurance to break the cycle of indebted governments having to take on more debt to bail out troubled banks. A proposal to use the euro zone's new rescue fund to buy sovereign debt and reduce governments' borrowing costs helped ease selling pressure on other European bond markets. Spain's 10-year government bond yield, a gauge of the compensation investors demand to lend to the government, fell 27 basis points to 6.93 percent. The equivalent Italian yield fell 15 basis points to 5.77 percent. Spot gold fell $12.67, or 0.78 percent, to $1,604.70. Gold hit its 2012 high around $1,790 in February when the Fed said it would keep interest rates near zero through 2014. Link this Share this Digg this Email Reprints

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