Stocks scale peaks, yuan drops most in three years

Reuters
An office worker walks past the board of the Australian Securities Exchange building displaying its logo in central Sydney
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An office worker walks past the board of the Australian Securities Exchange building displaying its logo in central Sydney April 5, 2013. REUTERS/Daniel Munoz

By Marc Jones

LONDON (Reuters) - World shares were at a 6-year high on Tuesday following a record peak on Wall Street, while moves by China to stamp out easy betting on the yuan triggered the currency's biggest drop in over three years.

The upbeat mood among equity investors in the United States as well as Europe helped steady markets in China after the sharp plunge in the yuan and talk of credit tightening had seen stocks in Beijing suffer their biggest drop since September. (.SSEC).

Spot yuan has entered a dramatic weakening cycle in recent weeks, guided by a series of moves by the central bank, with the unwinding of yuan positions by banks and funds adding downward momentum.

China allows the yuan to move 1 percent above or below a midpoint set daily but traders believe the recent depreciation is intended to set the stage for a widening of that band to 2 percent or more this year to make it more free moving.

"The yuan move has some relation to the slowdown in the Chinese economy but it looks more that it has been orchestrated by the PBOC to make it more of a two-way street for speculators," said Societe Generale strategist, Alvin Tan.

MSCI's all world index , which tracks stocks in 45 countries, was up 0.1 percent and in positive territory for the 13th session in 15 as it sat at a six-year high.

In Europe, the region's main share markets (.FTEU3) opened slightly lower, down 0.4 percent, but after seven straight sessions of gains traders were cashing in profits. (.EU)

The euro and benchmark German government bonds kept within tight recent ranges.

Investors were looking to European Commission forecasts due later in the day for the 28 EU member states, covering GDP, inflation, unemployment and debt.

In its last set of figures three months ago, the EU's executive said the euro zone recovery would be hampered by weaker private demand and investment and that growth would be an anemic 1.1 percent in 2014 as a result.

Any revisions up or down would add to the information the European Central Bank says it needs before deciding whether to take any policy action at its March meeting.

A detailed breakdown on Tuesday of Germany's fourth quarter GDP data confirmed quarterly growth of 0.4 percent with exports leading the way. Foreign trade, which had been weak for much of 2013, added 1.1 percentage points to GDP in the fourth quarter, but there was an alarm bell from weak domestic demand which subtracted 0.7 percentage points from growth.

WALL STREET HIGH

Away from China in Asia, Japan's Nikkei (NIK:^9452) bolted ahead by 1.4 percent to breach the 15,000 barrier, which in turn gave the dollar a slight lift on the yen to 102.56 yen.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5 percent, while Seoul (.KS11) gained 0.7 percent. Australia's market briefly hit its highest since mid-2008 (.AXJO) on a run of solid earnings reports.

"The (Tokyo share) market looks fairly cheap considering that Japanese corporate profits are expected to hit record highs in the year to March and are expected to rise further in the following financial year," said Ryota Sakagami, chief strategist at SMBC Nikko Securities.

Asia followed in the footsteps of Wall Street, where the benchmark S&P 500 hit an intra-day record as the Nasdaq punched to peaks last seen almost 14 years ago. U.S. markets are expected to start slightly lower later.

The latest U.S. economic data disappointed, but again the weakness was put down to bad weather. Instead, U.S. investors focused on a flurry of merger and acquisition activity that is pumping cash into the market and signaling growing confidence among business leaders. (.N)

U.S. Treasuries prices, which provide the benchmark for global borrowing costs, were steady on Tuesday after a dip overnight, with yields on the benchmark 10-year note holding at 2.74 percent in early European trade.

GOLD HOLDS

The swing in risk sentiment boosted currencies leveraged to global growth with the Australian dollar steady around $0.9015, having gained half a cent on Monday.

Most emerging Asian currencies also rose while in early trading Ukraine's sovereign dollar bonds kept most of Monday's stellar gains as hopes grew it would receive Western aid to prevent it going bankrupt after its political gyrations.

(EMRG/FRX)

Gold which has benefited from recent global uncertainty, was firm at around $1,335 an ounce after touching a four-month high. It faces stiff resistance at October's peak of

$1,361.60.

Oil prices faded just a little after supply worries gave them a boost the session before. Brent crude dipped 34 cents to $110.30 a barrel, while U.S. oil eased 54 cents to $102.28 a barrel.

(Additional reporting by Wayne Cole in Sydney; Editing by John Stonestreet)

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