World markets steady after Fed policy questions

Reuters
Employee of a foreign exchange trading company looks at monitors in Tokyo
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An employee of a foreign exchange trading company looks at monitors in Tokyo March 18, 2014. REUTERS/Toru Hanai

By Simon Jessop

LONDON (Reuters) - World markets steadied on Friday after a volatile run driven by speculation over shifts in U.S. monetary policy, with stocks up slightly, Bunds flat and the euro at a two-week low against the dollar.

But the U.S. Federal Reserve's plans look set to resume center stage later in the day as a number of its officials give speeches.

A bounce in most leading Asian and U.S. indexes overnight helped the MSCI World Index trade up 0.1 percent.

That gain was matched in early deals by the euro zone's blue chip Euro STOXX 50 index.

An escalation of U.S. sanctions against Russia over the crisis in Crimea kept Europe's investors cautious, though the index remained on course to snap a two-week losing streak and chalk up its best weekly performance of the year.

The lack of major violence in the region in recent days has helped a partial recovery in market sentiment, but the fresh U.S. sanctions announced overnight and a weakening in the credit outlook for Russia from ratings agency Fitch kept traders wary about stocks with heavy sales there.

Russian stocks (.MCX) opened down 3 percent.

"There hasn't been any military escalation, so the impact of the crisis on the overall European market is very small now, but on a more granular view, it's best to avoid all the stocks exposed to Russia, so it's a market for stock-pickers," a Paris-based trader said.

An important index options expiry on Friday was also helping support the market, given the heavy number of calls at the 3,100 point level, but traders said this could struggle to be maintained into next week.

DOLLAR BULL

Fed Chair Janet Yellen's suggestion on Wednesday that the first U.S. interest rate hike could come in the first half of 2015, earlier than many had expected, continued to support the dollar against the euro, yen and Swiss franc.

Two-year Treasury yields rose to their highest in six months.

Those moves suggest markets will also pay close attention to a quartet of Fed speakers later on Friday. St. Louis Fed President James Bullard, Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Fed Governor Jeremy Stein are all due to talk. (FED/DIARY)

Against a basket of major currencies, the dollar was trading at 80.171 (.DXY), not far from a high of 80.354, a level not seen since late February.

The euro eased to $1.3777, having plumbed a two-week low of $1.3749. It was on track to post a 1.0 percent drop this week and record its first weekly fall since late January.

Not helping the common currency, European Central Bank Executive Board Member Sabine Lautenschlaeger said interest rates would remain low or go even lower for an extended period.

The mixture of Fed wait-and-see and ECB hawkishness combined to steady benchmark German debt futures around a two-week high hit in the previous session.

In Asia, currency attention was again on China's yuan, which extended recent losses. The currency has fallen more than 1.2 percent so far this week, putting it on track for its largest weekly loss since 1992.

Government economists and advisers involved in internal policy discussions told Reuters that the central bank chose to widen the yuan's trading band since it was less risky than other reform options while also offering a way to hedge against further economic slowdown.

In commodity markets, gold added slightly to moves in the Asian session to trade around $1,336.36 an ounce, but remained on course to post its worst week since late November.

Brent crude was up 18 cents to $106.63 a barrel, while U.S. crude for May delivery was down 4 cents to $98.86 per barrel.

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

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