Syria concerns check gains on better economic data

Reuters
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A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett

By Richard Hubbard

LONDON (Reuters) - Concerns about Syria and looming central bank policy decisions held the dollar near a six-week high on Wednesday and kept shares and oil under pressure despite upbeat data on the global economic recovery.

The mood of caution generally trumped more evidence of global economic recovery.

Syria was uppermost in many investors minds after Russian President Vladimir Putin signaled a readiness to drop his opposition to military action if Damascus were proven to have carried out a chemical weapons attack.

Putin's comments come after U.S. President Barack Obama clinched the backing of key figures in Congress for his plan to punish the Syrian government with limited military strikes, though no vote on that proposal is due until next week.

Investors also faced a busy period of potentially market moving events in the next few days, including a G20 summit in Moscow, policy decisions on Thursday from the Bank of England, Bank of Japan and European Central Bank, and the U.S. jobs report on Friday.

Together, they put a lid on activity.

"There's a whole host of stuff that has the potential to undermine risk appetite and it's just making people a little bit cautious," said Michael Hewson, senior market analyst at CMC Markets.

"My take on it is if you're a little bit concerned about the outlook going forward, you're not going to take long term investment decisions," he added.

Given all the risks the dollar held steady against a basket of major currencies at 82.368 (.DXY), its best level since July 22 and supported by data on Tuesday which showed American factory output growing surprisingly strongly. (ECON/US)

The numbers were seen as increasing the likelihood that the Fed will begin cutting its current economic stimulus at its policy meeting on September 17-18, lifting U.S. bond yields which add to the attraction of the dollar.

"Good U.S. economic data has helped the dollar. What is important is the U.S. labor market report which is a strong hint for the future course of Fed monetary policy and when they will start tapering," said Ulrich Leuchtmann, head of FX research at Commerzbank.

On equity markets MSCI's world share index , which tracks moves in 45 countries, was little changed as the Syrian concerns offset the brighter U.S. outlook. Stock index futures pointed to an equally flat open on Wall Street..

Oil prices actually eased slightly despite all the talk about a Syrian strike, though with Brent crude down 55 cents at barrel at $115 it remains well up from levels of near $111 a barrel seen before the Syrian gas attacks came to light.

Some sporadic safe-haven buying allowed gold to hold above $1,400 an ounce but the price had slipped by 0.5 percent from the peaks hit on Tuesday when a missile test by Israeli forces training with the U.S. Navy set nerves on edge. (GOL/)

GLOBAL PICKUP

Riskier assets worldwide were drawing some support from a run of surprisingly strong manufacturing activity data from the United States, China, the UK and across Europe this week .

On Wednesday new data revealed the pickup spreading to the service sector with activity in China hitting its highest level for five months in August.

Euro zone businesses also recorded their best month in over two years in August as orders increased for the first time since mid-2011, a separate survey showed, suggesting the region's economy will grow slightly this quarter.

"The euro zone recovery is looking increasingly broad-based, with more sectors and more countries emerging from recession," said Chris Williamson, chief economist at data collator Markit.

Williamson said Markit's euro zone composite PMI, compiled from a survey of thousands of companies across the 17-nation bloc and viewed as a good gauge of growth, suggested the region's economy would grow 0.2 percent in the current quarter.

However, the positive data proved no match in the European equity markets for a profit warning from the region's biggest budget airline, Ryanair, which highlighted concerns about the outlook for the whole transport sector if tension in the Middle East were to cause a spike in oil prices.

Europe's broad FTSE Eurofirst 300 index (.FTEU3) was down of 0.5 percent by late-morning for a second day of losses, though it has risen 15 percent since early June on expectations that a broad recovery is taking hold across the recession-hit region.

(Additional reporting by Anooja Debnath.; Editing by Jeremy Gaunt)

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