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World stocks rise - dollar falls broadly

Source: Reuters - Wed 23rd Sep 2009

World stocks and oil rose on Tuesday ahead of a two-day Federal Reserve meeting, while investors' search for higher returns pushed the dollar to a one-year low against the euro.

Major U.S. equity indices such as the Dow Jones industrial average and the Standard & Poor's 500 index .SPX followed European markets and Asian markets higher, while the low-yielding dollar .DXY retreated. Gold, meanwhile, traded within striking distance of recent 18-month highs on further dollar weakness.

The latest leg of the rally in risk assets, which helped world stocks recoup more than half of last year's losses, stemmed from repeated pronouncements by G20 policymakers to keep emergency economic support in place.

The G20 summit of rich and emerging nations in Pittsburgh on Thursday and Friday is expected to underline that commitment while the Fed's monetary policy-setting Open Market Committee is expected to do likewise when its meeting ends on Wednesday.

Money managers aren't fighting the rally. "The fundamental position for all equity markets has just been improving and we know that the central banks, particularly the UK and, importantly, the Federal Reserve, are committed to keep interest rates low for a long period of time" said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

The MSCI world equity index rose 1.15 percent to 291.27, closing in on last week's year high of 292.06. The index has risen 27 percent since January.

At the session's preliminary close, the Dow industrials were up 51.01 points, or 0.52 percent, at 9,829.87, while the Standard & Poor's 500 Index was up 7 points, or 0.66 percent, at 1,071.66.

The FTSEurofirst 300 index rose 0.54 percent while emerging stocks rose 1.5 percent. 

The U.S. dollar slid to a 1-year low against the euro near $1.48, while the New Zealand dollar - often seen as a bellwether of global risk appetite - surged to a 13-month high above $0.7230.

Against the Japanese yen, the dollar was down 0.16 percent at 91.13 from a previous session close of 91.280.

Spot gold hit $1,019.50 an ounce during intraday trading, closing in on its 18-month high of $1,023.85. A weaker greenback makes dollar-priced gold less expensive for non-U.S. investors.

Energy stocks advanced as crude oil gained 1.84 percent to $71.55 a barrel, bouncing back after its 3 percent decline on Monday.

The Fed - the U.S. central bank - is expected to keep its benchmark federal funds rate unchanged in a range of zero to 0.25 percent, but investors will look for signs in its accompanying statement of how quickly policy-makers might remove extraordinary programs that have helped revive lending and economic activity.


Although trading volumes in Asia were capped by public holidays in Japan, G20 discussions on plans to rebalance the world economy were read by traders as dollar-negative there, with sentiment spilling over in Europe and the United States.

A document outlining the U.S. position ahead of the summit said exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings.

"If you take the view that too much of U.S. growth has been domestically driven, the next logical step is to say an orderly decline of the dollar - it's not in anyone's interest to see a collapse - in many ways makes sense" said Tom Fitzpatrick, chief technical analyst at Citigroup in New York. 

"At the end of the day, the U.S. has a zero interest rate policy and the highest fiscal deficit in peacetime while (foreign investors) are holding a lot of dollars, so the path of least resistance for the dollar is down" he added.

Government debt markets continue to be weighed down by a fresh wave of new debt sales this week. Tuesday, the U.S. government sold $43 billion (26 billion pounds) worth of two-year Treasury notes in an auction that attracted strong demand.

That gave the U.S. Treasury debt markets a lift. The benchmark 10-year U.S. Treasury note was up 10/32, with the yield at 3.45 percent, while the 30-year U.S. Treasury bond was up 23/32, with the yield at 4.2 percent.

Even so, the two-year note sale is the first of three that will bring a near-record $112 billion in debt to market this week, all of which are likely to be watched closely to gauge how investor appetite is holding up in this year's deluge of bond supply.

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