Euro falls on potential ECB rate cut, global stocks slip anew

Reuters
A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri
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A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri

By Herbert Lash

NEW YORK (Reuters) - Global equity markets slipped on Friday despite upbeat factory data worldwide, while the euro fell to a two-week low against the dollar on expectations that a rate cut by the European Central Bank is possible by the end of the year.

Stocks on Wall Street edged lower after data showing U.S. manufacturing expanded briskly in October raised some worries that the U.S. Federal Reserve may scale back its massive stimulus much sooner than expected.

U.S. equities have been pressured since a Fed statement on Wednesday raised concerns about when the central bank would begin to scale back its stimulus program, which has fueled the benchmark S&P 500 index's 23-percent rally this year.

The Institute for Supply Management (ISM) said its index of U.S. factory activity rose to 56.4 last month - its best showing since April 2011 - from 56.2 in September. Economists polled by Reuters had expected a reading of 55.

The S&P and Dow Jones industrial average have repeatedly hit record highs this year, including earlier in the week, but the strong gains have triggered some concerns about how much further the rally can continue, especially in light of tepid corporate revenue growth.

With almost three-fourths of S&P 500 companies reporting results so far, 68.5 percent have beaten profit expectations, above the long-term average of 63 percent, according to Thomson Reuters data. However, only 53.3 percent have topped revenue forecasts, below the 61 percent average since 2002.

"I'm not comfortable with the market at all-time highs, especially with earnings being mediocre," said Mark Grant, managing director at Southwest Securities in Fort Lauderdale, Florida.

"But the manufacturing report was better than expected, and where else can you go with the Fed putting so much liquidity into the system?" Grant said.

The Dow Jones industrial average was up 30.57 points, or 0.20 percent, at 15,576.32. The Standard & Poor's 500 Index was down 0.28 points, or 0.02 percent, at 1,756.26. The Nasdaq Composite Index was down 7.57 points, or 0.19 percent, at 3,912.13.

European stock markets eased off five-year highs amid signs of weakness in regional corporate earnings.

The pan-European FTSEurofirst 300 index of leading European companies fell 0.31 percent to close at 1,288.67.

U.S. Treasuries prices fell for a third consecutive session as the encouraging ISM report on manufacturing suggested the U.S. economy overcame a drag from the partial government shutdown in October.

The rosier data revived some worries among investors that the Fed might scale back its bond-buying earlier than expected - at its December meeting - rather than early in 2014.

"There is a feeling that they might taper in December. It has gained a little steam, but that's not the consensus," said Matt Duch, a portfolio manager at Calvert Investments in Bethesda, Maryland.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.6108 percent.

Euro zone bonds broadly edged higher, extending this week's rise, after data showed a surprisingly sharp inflation slowdown in the euro zone. Many in the market expect the ECB to signal a rate cut or new liquidity injections at its meeting next week.

German two-year yields, the most sensitive to shifts in monetary policy expectations, were 1 basis point lower at 0.11 percent,

Bund futures fell 15 ticks to settle at 141.85, having hit a two-month peak of 142.32 on Thursday.

Expectations of an ECB rate cut was seen eroding the euro's interest rate advantage over other major currencies. The single currency was poised to notch its worst weekly loss against the dollar since July 2012.

The euro fell 0.74 percent to $1.3482.

Renewed pressure on the euro saw the dollar index rise to a six-week high of 80.785, climbing further up from a nine-month trough of 78.998 plumbed a week earlier. It last traded at 80.777.

The dollar was up 0.43 percent against the yen at 98.77 yen, according to Reuters data.

Brent crude oil dropped by more than $2 to below $107 a barrel as a strong dollar outweighed previous concerns over a drop in Libyan crude exports.

Brent crude for December delivery was down by $2.14 at $106.70 after rising as high as $109.41 a barrel in early trading.

U.S. oil for December was down $1.37 at $95.01, putting it in line for a fourth straight week of declines, its longest losing streak since June 2012.

(Reporting by Herbert Lash; Editing by Bernadette Baum)

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