Reuters: US Dollar Report: GLOBAL MARKETS-Euro gains on ECB bond buying hopes; stocks flat

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GLOBAL MARKETS-Euro gains on ECB bond buying hopes; stocks flat Sep 5th 2012, 15:53 Wed Sep 5, 2012 11:53am EDT * Euro jumps on report ECB plans unlimited but sterilised bond buying * Growth worries counter ECB hopes in European share markets * Oil and gold dip but supported by talk of central bank action * Iron ore and steel prices hit fresh lows By Edward Krudy NEW YORK, Sept 5 (Reuters) - The euro rose on Wednesday but major stockmarkets were steady after media reports suggested the European Central Bank may buy unlimited amounts of short-term government debt to ease the region's financial crisis. Markets have been expecting ECB President Mario Draghi to unveil a bold plan at a policy meeting on Thursday, and a report from Bloomberg, which suggested the purchases of the debt of some eurozone countries could be unlimited, dispelled some recent scepticism about the scale of the programme. The European Central Bank may also be ready to waive seniority status on government bonds it buys under the new programme which would mean investors would not rank lower in any restructuring of euro zone sovereign debt. The ECB said in August it would start buying Spanish and Italian government bonds again to ease pressure on those countries' borrowing costs, but only if they first sought help from the euro zone's rescue fund and met strict conditions. The news helped pushed down yields on Spanish and Italian bonds but stocks in European and U.S. markets struggled to make headway as the ECB would likely "sterilize" its bond buying by taking interest-bearing deposits from banks every week matching the amount spent on the bonds. After a rally in stocks in Europe and the U.S. over the summer, traders also feared the markets had already priced in any ECB move and would take profits when the news was announced on Thursday. "Even if the ECB comes with some kind of bond-buying program and the Fed announces some form of additional stimulus, I think there's a pretty good chance that the market will sell that news," said James Dailey, portfolio manger at TEAM Asset Strategy fund in Harrisburg, Pennsylvania. The euro, which had been down 0.15 percent at $1.2550 , jumped to $1.26 after the report, closer to Friday's two-month peak of $1.26378. European shares initially extended their gains on the report before settling up 0.2 percent at 1081.15 points, though the blue-chip Euro STOXX 50 index was up 0.2 percent. "The ECB's bond buying plan is welcome, but you can't wax a car and hope it fixes the engine. Europe needs structural changes," said Manish Singh at Crossbridge Capital in a note. Wariness over the ECB plans was in evidence on Wall Street, where the Dow Jones industrial average gained just 0.1 percent at the start of trading to 13,045, while the broader Standard & Poor's 500 Index dropped 0.05 percent to 1,404.20 points. The growing likelihood of ECB action to ease the current stresses in the European debt market had already curtailed demand for safe-haven German bonds at an auction of new 10-year paper earlier in the day. The German Finance Agency, which managed the debt sale, only received bids from investors worth 3.93 billion euros ($4.9 billion) for the 5 billion of bonds it wanted to sell. Analysts said demand might have been affected by the heavy supply elsewhere in the euro zone as the Netherlands was selling a three-year dollar-denominated bond, while triple-A rated Austria also sold bonds on Tuesday. "(The auction) probably reflects the sheer volume of competing 10-year core supply both last week and this week, and of course the ECB event risk," said Credit Agricole rate strategist Peter Chatwell. GROWTH GRIM Beyond the ECB plans, investors were also awaiting Friday's monthly U.S. Labor Dept employment report for August and the Federal Reserve policy meeting next week. A weaker-than-expected jobs report could bolster expectations of more quantitative easing by the Federal Reserve, after Fed chairman Bernanke expressed concern about the labor market at the Jackson Hole, Wyoming conference last weekend. Investors remain concerned about a global slowdown in manufacturing activity as reported by purchasing managers indices (PMIs) in China, the euro zone and the U.S. this week. Earlier Wednesday purchasing managers indices also showed slowing activity in the service sector in China and Europe. A Reuters poll published last month predicted the euro zone would contract 0.2 percent in the three months to September. COMMODITIES SLIDE The business surveys have added weight to growing fears in the commodity markets that demand is set to wane. The prices of iron ore and steel have fallen dramatically on signs of slowing activity in China, though the slowdown has renewed hopes for central bank policy easing. Iron ore prices, which have dropped 36 percent since early July, were below $90 a tonne , their weakest level since October 2009. Steel futures hit an all-time low on the Shanghai Futures Exchange, with further falls expected. In oil markets the growth worries pushed Brent crude under $114 a barrel on Wednesday, and U.S. crude futures slid 15 cents to $95.15. Gold, which would benefit if lower growth prompts central banks into action, edged down 0.2 percent to $1,690.70 an ounce but is still trading near a six-month high. Link this Share this Digg this Email Reprints

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