reuters.com Thu January 30, 2003 06:26 AM ET By Nigel Stephenson

LONDON (Reuters) - Shares and the dollar rose and safe-haven gold dipped on Thursday as investors seized on a slight easing in global tension after Washington said it was launching a final diplomatic push to avert war with Iraq.

Oil and risk-free government bond prices also fell as President Bush prepared to make a diplomatic push to persuade Iraq to disarm and thus avoid a possible conflict that has been unsettling financial markets for months.

Soothing signals about the state of the U.S. economy from the Federal Reserve, which left interest rates at a four-decade low on Wednesday, also added to the less gloomy mood.

"I think probably the steady outlook they provided was the most reassuring for the market," said Rob Hayward, senior currency strategist at ABN AMRO.

Fed policymakers left rates at 1.25 percent and said risks to the U.S. economy remained evenly balanced between higher prices and renewed downturn and expressed hope U.S. growth would pick up once fears of war with Iraq have lifted.

"An easing bias could have been justified by data or by uncertainties, but people would have been more concerned seeing that even the Fed's worried, and wonder if they are going to cut rates again or if the economy was in a worse position than thought."

The dollar firmed after a rally on Wall Street following the U.S. Federal Reserve's widely expected decision.

The euro was last trading around $1.0755, up more than half a percent from its New York close. The greenback hit a three-year low beyond $1.09 on Monday. The U.S. currency was up a third of a percent on the yen at 118.89.

"The dollar is following stocks now," said Julian Jessop, chief European economist at Standard Chartered in London.

"And as long as stocks open higher, the dollar will continue to have a good day. There is a feeling that a lot of bad news has already been priced in, and with most people being big sellers this is a good moment to take profits," he said.

The market was looking to U.S. fourth-quarter growth data due at 8:30 a.m. EST 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.

STOCKS RISE AFTER FED STEADIES NERVES

European stocks rose after the Fed helped steady nerves rattled by the threat of war.

The FTSE Eurotop 300 index of pan-European blue chips was up 2.0 percent at 1100 GMT while the narrower DJ Euro STOXX 50 index was up 2.35 percent.

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. stock index futures, which were lower in early European trade, turned higher, indicating Wall Street would open higher.

The Dow Jones Industrial average ended up 0.27 percent on Wednesday. The tech-dominated Nasdaq closed 1.18 percent higher after Merrill Lynch raised its outlook on Novellus Systems Inc, a maker of equipment used to produce computer chips.

Tokyo shares closed lower as institutions, spooked by the threat of war, sold blue chips. The Nikkei ended down 0.17 percent, just above a two-decade low hit last November. The broader TOPIX index dipped 0.07 percent.

Oil prices steadied as traders eyed Bush's diplomatic effort. Brent crude for March delivery was almost unchanged at $31 a barrel. U.S. light crude, which rose three percent on Wednesday on a big drop in U.S. winter heating oil stocks, was also flat at $33.63 a barrel.

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.

Gold, seen as a safe place for investors to put their money in times of geopolitical turmoil, fell in Europe. Spot gold, which has risen some seven percent this year, was quoted at $363 an ounce, compared with $366 at Wednesday's New York close.

Safe-haven government bond prices fell. The yield on the two-year German Schatz, which moves in the opposite direction to the price, was up 2.7 basis points at 2.63 percent. It touched a 3-1/2 year low of 2.54 percent last week. The 10-year Bund was yielding 4.09 percent, up 2.7 basis points.

reuters.com Thu January 30, 2003 04:19 AM ET By Nigel Stephenson

LONDON (Reuters) - The dollar firmed, European stocks rose and oil prices dipped on Thursday after Washington said it would make a last diplomatic effort to avert war with Iraq and the U.S. central bank left interest rates unchanged.

Safe-haven gold and government debt prices fell as U.S. administration officials said President Bush and his top aides were opening a final "diplomatic window" with allies to try to avoid the seemingly inevitable conflict over U.N. demands Iraq give up weapons of mass destruction.

Bush said on Tuesday that his Secretary of State Colin Powell would next week lay before the U.N. Security Council intelligence showing Iraq has been concealing weapons. Iraq denies having such weapons.

The dollar firmed after a rally on Wall Street following the U.S. Federal Reserve's widely expected decision to leave rates at a four-decade low. Fed policymakers said risks to the U.S. economy remained evenly balanced between higher prices and renewed downturn and expressed hope the U.S. economy would pick up once fears of war with Iraq have lifted.

"I think probably the steady outlook they provided was the most reassuring for the market," said Rob Hayward, senior currency strategist at ABN Amro.

"An easing bias could have been justified by data or by uncertainties, but people would have been more concerned seeing that even the Fed's worried, and wonder if they are going to cut rates again or if the economy was in a worse position than thought."

The euro was last trading around $1.0760, up more than half a percent from its New York close. The greenback hit a three-year low beyond $1.09 on Monday. The U.S. currency was up a third of a percent on the yen at 118.86 JPY= and the pound GBP= .

Some traders said short dollar positions were being unwound after Bundesbank President and European Central bank council member Ernst Welteke said the euro's rapid rise would become a problem for the euro zone economy if it continued.

"A bit of dollar fatigue is creeping in. Welteke comments prompted some re-evaluation among traders," said one trader at a London-based bank. "But it is positioning and not a change of sentiment."

TECHS LEAD EUROPEAN STOCKS HIGHER

European stocks rose, led by software group SAP SAPG.DE , which beat 2002 targets, and handset maker Nokia NOK1V.HE .

The FTSE Eurotop 300 index .FTEU3 of pan-European blue chips was up 1.4 percent at 0850 GMT while the narrower DJ Euro STOXX 50 index .STOXX50E was up 1.53 percent.

U.S. stocks closed higher after the Fed decision soothed investors' nerves jangled by Bush's tough talk on Iraq.

The Dow Jones Industrial average .DJI ended up 0.27 percent. The tech-dominated Nasdaq .IXIC closed 1.18 percent higher after Merrill Lynch raised Novellus Systems Inc NVLS.O , a maker of equipment used to produce computer chips.

However, U.S. stock index futures were slightly down in early European trade, indicating Wall Street would open lower.

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 index .TOPX dipped 0.07 percent.

Gold, seen as a safe place for investors to put their money in times of geopolitical turmoil, fell in Europe. Spot gold XAU= , which has risen some seven percent this year, was quoted at $364. an ounce, compared with $366 at Wednesday's New York close.

Oil prices dipped on renewed hopes war could be averted by the U.S. diplomatic push. Brent crude for March delivery LCOH3 was down 17 cents at $30.85 a barrel. U.S. light crude CLc1 , which rose three percent on Wednesday on a big drop in U.S. winter heating oil stocks, was down 13 cents at $33.50 a barrel.

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 2.2 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 4.08 percent, up 2.0 basis points.

"The stocks won't be helping but the real story has been war and there is a realization that the panic buying that was driving the market...that reflex is waning and some of the people who had it are long and suffering," one European debt trader said.

www.bloomberg.com Thu, 30 Jan 2003, 11:31am EDT By Sineva Toevai

Sydney, Jan. 30 (Bloomberg) -- Australian bonds fell as a gain in local shares sapped demand for government debt with yields at about a 14-month low, analysts said.

The 6.5 percent bond maturing in May 2013 fell 0.606, or A$6.06 per A$1,000 amount, to 109.988 at 8:45 a.m. Sydney time. Its yield rose 7 basis points, or 0.07 percentage point, to 5.23 percent. The yield on the 7.5 percent bond maturing July 2005 rose 7 basis points to 4.57 percent.

Bonds rallied this month, pushing the yield on the 10-year bond close to the lowest level since November 2001 as concern a U.S.-led war against Iraq may curb economic growth boosted demand for securities that offer fixed payments.

Bond yields are at very low levels right now,'' said Peter Munckton, a debt market strategist at Commonwealth Bank of Australia, who expects the 10-year bond yield to rise to 6 percent in the first quarter of the year. Stocks look reasonably rich,'' he said.

The Australian SPI 200 stock futures contract due in March rose 0.6 percent, indicating stocks may rise when trading starts at 10 a.m.

The Australian dollar bought 58.93 U.S. cents compared with 59.05 U.S. cents in late Asian trading yesterday.

www.wtev.com

The Federal Reserve's rate-setting panel is not expected to announce a reduction of short-term interest rates when it ends a second day of meetings today, but the nation's top monetary officials have had much to talk about.

Adding to the specter of war with Iraq and a general strike in Venezuela that cut oil production and caused world crude prices to rise, the Conference Board in New York reported yesterday that US consumer confidence fell this month to its lowest levels in nine years. Orders for durable goods rose in December, though not by enough to lift a moribund manufacturing industry burdened by excess capacity.

Other economic data argue against an interest rate cut by the Fed, economists said, including a housing market that was strong in December and prospects that some portion of the $670 billion tax-cut package by President Bush, if passed by Congress, would spur the economy later this year.

The Fed's open market committee is expected to hold the federal funds rate at 1.25 percent. With rates already low, the Fed wants "to keep some bullets in the gun" for use when they may need them more, said Brian Horrigan, chief economist in Boston for Loomis Sayles & Co.

But few economists predict that officials who set monetary policy in Washington will change the wording of their statement to reflect the rising uncertainty in the economy. The US will release its fourth-quarter estimate of growth tomorrow, and analysts expect it to show the economy slowed dramatically, or even contracted. While most economists forecast a turnaround later this year, they warn of many risks. The Fed "won't do anything unless they have to," Horrigan said. "The next meeting is March. If we're in a situation where bombs are dropping, they might decide to give us one more ease. They also could do it in the interim."

Conflicting signals from the economy caused confusion in the markets.

Yesterday, optimistic investors pushed up stocks in reaction to positive earnings reports by various companies and in anticipation of the president's State of the Union message last night and higher orders for durable goods. The Dow, which has trended downward for more than a week, rose 99.28 points, or 1.2 percent, to 8,088.84. The Nasdaq Composite index gained 16.91 points, or 1.3 percent, to close at 1,342.18.

Speaking yesterday at his confirmation hearing before the Senate Finance Committee, Treasury secretary nominee John Snow, the chief executive of CSX Corp., said about President Bush's sweeping tax-cut proposal, which would cut taxes on stock dividends, "I do know, and I believe this deeply, [that] this is a well-conceived growth package . . .that the country needs."

But economists say a tax package tilted toward wealthy investors may do little to stimulate economic activity at a time when consumer spending may be trailing off and consumer confidence is at its lowest level since November 1993. The Conference Board's monthly index dropped nearly two points, to 79.0 in January, from 80.7 in December. The index does not necessarily portend a decline in actual spending, however, and a closer look revealed mixed sentiment: Consumers said their present situation has improved, but they are pessimistic about the future.

Orders for durable goods rose by 0.2 percent in December, a more sluggish pace than many expected. Excluding defense orders, total orders would have fallen. One surprise was a 3.2 percent surge in December orders for computers and electronics, which matched the pace in July 2002, said Jeoff Hall, economist for Thomson Financial IFR, a financial markets advisory firm in Boston.

In making their decisions about rates, Fed officials must weigh data from the consumer sector against manufacturing activity, Hall said.

While the manufacturing sector has barely responded to low interest rates, another rate cut might encourage consumers to continue the questionable practice of building up debt by tapping into home equity to finance discretionary purchases, such as cars.

"It's not that the Fed doesn't want to see consumer spending continue, but I think they are concerned about how that spending is coming about," he said.

To see more of The Boston Globe, or to subscribe to the newspaper, go to www.boston.com

(c) 2003, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.

www.bloomberg.com Thu, 30 Jan 2003, 11:01am EDT By Sineva Toevai

Sydney, Jan. 30 (Bloomberg) -- Australian bonds fell as a gain in local shares sapped demand for government debt with yields at about a 14-month low, analysts said.

The 6.5 percent bond maturing in May 2013 fell 0.606, or A$6.06 per A$1,000 amount, to 109.988 at 8:45 a.m. Sydney time. Its yield rose 7 basis points, or 0.07 percentage point, to 5.23 percent. The yield on the 7.5 percent bond maturing July 2005 rose 7 basis points to 4.57 percent.

Bonds rallied this month, pushing the yield on the 10-year bond close to the lowest level since November 2001 as concern a U.S.-led war against Iraq may curb economic growth boosted demand for securities that offer fixed payments.

Bond yields are at very low levels right now,'' said Peter Munckton, a debt market strategist at Commonwealth Bank of Australia, who expects the 10-year bond yield to rise to 6 percent in the first quarter of the year. Stocks look reasonably rich,'' he said.

The Australian SPI 200 stock futures contract due in March rose 0.6 percent, indicating stocks may rise when trading starts at 10 a.m.

The Australian dollar bought 58.93 U.S. cents compared with 59.05 U.S. cents in late Asian trading yesterday.