Stocks, Dollar Rise on US Diplomacy Hopes
abcnews.go.com — By Nigel Stephenson
LONDON (Reuters) - Stocks and the dollar rose on Thursday as Washington prepared to launch a last diplomatic push to persuade Iraq to disarm and the Federal Reserve sought to soothe nerves over the U.S. economy.
Safe haven gold and government debt prices eased after U.S. officials heralded an uptick in the diplomatic tempo ahead of Secretary of State Colin Powell's February 5 presentation to the Security Council of intelligence on Iraq's alleged arms programs.
U.S. stocks looked set to open flat but world crude prices stayed strong as the oil market brushed off the U.S. diplomatic initiative as unlikely to avert conflict.
The dollar edged off three year lows after the Fed left interest rates unchanged at a four-decade low on Wednesday and said the U.S. economy should pick up as war fears lift.
Some traders cited a letter of solidarity with the Bush administration, signed by eight European prime ministers and published in several newspapers, as contributing to the more positive mood.
"People were looking for an excuse to buy and this (the allies' support) represents a moderate improvement for the U.S.," said Paul Meggyesi, currency analyst at JP Morgan.
The euro was last trading around $1.0745, up 0.8 percent from its New York close. The greenback hit a three-year low beyond $1.09 on Monday. The U.S. currency was up nearly half a percent on the yen at 118.94.
European stocks rose, led by gains in insurers, and U.S. futures indicated Wall Street was set to open modestly higher.
"The fear and uncertainty over a possible conflict will soon be over," said Roger Hornett, chief executive and global strategist at Gilissen Securities.
The FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was up 1.97 percent while the narrower DJ Euro STOXX 50 <.STOXX50E> index was up 1.77 percent, off the day's highs.
Insurers bounced from a four-month low hit on Wednesday on worries over the impact of tumbling share prices.
However, some money managers cautioned the downward trend, which saw nine consecutive days of losses, was still intact.
"Last week we had huge declines in equity markets and therefore some upward correction is inevitable, but we asset managers take a more medium-term view and we continue to underweight equities," said Joerg Kraemer, a strategist at Invesco Asset Management in Frankfurt.
U.S. SHARES SEEN FLAT
U.S. shares, which rallied on Wednesday after the Fed's decision, were expected to open flat.
Markets were also looking to U.S. fourth-quarter growth data due at 1330 GMT for more clues to the state of the economy. Economists forecast a subdued 0.7 percent annual growth rate after 4.0 percent in the previous three months.
Tokyo shares closed lower as institutions, spooked by the threat of war, sold blue chips. The Nikkei <.N225> ended down 0.17 percent, just above a two-decade low hit last November. The broader TOPIX <.TOPX> index dipped 0.07 percent.
Oil prices held firm. Brent crude for March delivery
"Washington says that the current flurry of international diplomatic activity is a window of opportunity to avert war. We see it as an attempt to build an international coalition to back the U.S. position and that war is inevitable," said Lawrence Eagles at GNI-Man Financial.
The threat of war in the Gulf, which supplies 40 percent of world crude exports, and a strike in Venezuela, have pushed up prices 35 percent since late November.
Safe-haven government bond prices fell. The yield on the two-year German Schatz <EU2YT=RR>, which moves in the opposite direction to the price, was up 1.6 basis points at 2.62 percent. It touched a 3-1/2 year low of 2.54 percent last week. The 10-year Bund <EU10YT=RR> was yielding 4.09 percent, up 3.4 basis points.