GLOBAL MARKETS-U.S. debt deal hopes lift world shares, dollar fades
* All eyes on Washington as progress seen over deadlock
* European, Asian stocks track Wall Street higher, yen
broadly lower
* Dollar fades on view Fed tapering could be delayed
* Gold, copper steady after weekly falls, oil holds gains
By Marc Jones
LONDON, Oct 11 (Reuters) - Firming hopes of a U.S. deal to
ensure the country does not default on its debt lifted world
shares for a second day on Friday and left the dollar on course
for its first weekly rise in five.
Republican lawmakers on Thursday offered a plan that would
extend the U.S. government's borrowing authority for several
weeks, staving off a default that could otherwise come as soon
as Oct. 17.
While no deal emerged from a meeting with the Democrats at
the White House, the two sides appeared ready to end a political
crisis that has shuttered much of the U.S. government for over a
week and dented Washington's image worldwide.
MSCI's world shares index, which tracks
stocks in 45 countries, was up almost 0.5 percent by mid-session
in Europe as a 0.4 percent rise by European shares
followed a rally in Asian and U.S. markets overnight.
Stock futures pointed to modest gains of around 0.1 percent
on Wall Street when trading resumes with investors expected to
be cooler after the S&P 500 on Thursday enjoyed its best
day since January.
One senior Republican politician said a U.S. deal could be
struck as early as Friday and Nick Beecroft, chairman of Saxo
Capital Markets, said he expected a short-term agreement which
would give 6 weeks of breathing space, by Tuesday at the latest.
"I think when we see an agreement on the debt ceiling we
will see the high in U.S. Treasury yields drift down due to
relief out of that and the stock market will probably do well,"
Beecroft said, adding there were other implications for
financial markets too.
"I think it lends even more support to what I am beginning
to feel, which is that tapering is not going to happen until
March. When the data eventually comes through, it will look so
subdued that there will be no way the Fed's hurdles (to start
stimulus withdrawal) would have been met by December."
That view saw the dollar slip back 0.2 percent
against a basket of currencies. However, gains made earlier in
the week left it on course for its first weekly rise since early
September.
German government bonds reversed their morning
gains too alongside U.S. Treasuries, as the sense of
relief in core debt turned into risk appetite and lifted euro
zone periphery debt from Italy to Greece in the process.
EURO FIGHTER
Just round the corner from the wrangling in the White House,
top officials and central bankers from the world's largest
economies were meeting at the IMF and World Bank's annual
meetings.
The meeting's main communique is due out later but U.S.
Treasury Secretary Jack Lew and Federal Reserve Chairman Ben
Bernanke assured their G20 counterparts at a dinner on Thursday
that a U.S. debt resolution would be reached in time.
In currency markets, the 'risk-on' mood was clear with
traditional safe refuge, the yen, sagging across the board,
particularly against higher-yielding currencies such as the
Australian dollar.
The dollar and euro each rose to 1-1/2 week highs against
the Japanese currency and were last at 98.30 yen and
133.23 respectively.
Despite some strong comments from European Central Bank head
Mario Draghi on Thursday stressing the bank's policy "easing
bias", the euro bolted back up to $1.3572 as the Fed
tapering questions hit the dollar, and it was stronger against
sterling too.
Despite the ECB's best efforts, the single currency has
muscled higher over recent weeks as signs of recovery in some of
the euro zone's most troubled economies have emerged.
"At the moment Draghi is talking the talk but not walking
the walk," said Jane Foley, a senior FX strategist at Rabobank.
"He's got nothing to back it up. Is he going to cut rates?
Probably not. Is there going to be another LTRO (long-term
refinancing operation) when banks are paying back the current
one?"
FLUID POLITICS
With U.S. data still heavily reduced due to the government
shutdown, investor attention focused on the start of the third
quarter U.S. earnings season as J.P. Morgan published its
results.
Commodity markets remained choppy. With the dollar steadier
after two days of gains, oil's rebound came to a halt at
$111.48 a barrel. Gold firmed at $1,290, though it looked
set for its second week of 1.5 percent-plus falls.
Struggling also was copper, one of the metals most attuned
to global growth. It put on 0.1 percent to $7,153.00 a
tonne, but the week's stresses left it heading for its biggest
weekly drop in a month.
Traders and economists warned that the U.S. fiscal crisis
remained delicate and any setback in resolving it could see
markets quickly turn tail.
"The situation is fluid, but it seems like progress is being
made on averting the worst-case scenario. But a short-term
solution should be met with short-term enthusiasm," analysts at
Nomura wrote in a client note.
