SYDNEY (Reuters) - The euro paused on Friday
but was still on track to post its best weekly
performance against the dollar in 20 months,
while Asian equity markets struggled to extend
recent gains, with Japan's Nikkei retreating from
an 8-month peak.
European shares were expected to open lower
with financial spreadbetters calling for declines of
up to 0.5 percent.
The common currency fell prey to profit taking,
having raced to a high of $1.3383 on Thursday
after the European Central Bank caught markets
off guard by hinting it could lift interest rates to
contain inflation, even while the bloc was tackling
a debt crisis. It was last at $1.3338, slightly below
late U.S. levels.
The hawkish comments followed interest rate
hikes in Thailand and South Korea this week as
policymakers grow increasingly worried about
inflationary pressures.
"The signals from the ECB also reinforce our
view that it will hike before the Fed does," said
Ken Wattret, BNP Paribas chief eurogroup
market economist.
"As relatively little in the way of rate hikes has
been priced in for this year, the market is likely to
continue to shift in the direction of early
tightening, absent a resurgence in market
volatility."
The euro's rise marked an impressive
turnaround from a four-month low around
$1.2871 on Monday and set the scene for a retest
of the December high of $1.3500. It is up about
3.5 percent this week, the biggest weekly rise
since May 2009.
Well-received bond sales from highly indebted
euro zone members Portugal and Spain this
week and speculation that European
policymakers will boost their war chest against
attacks on euro zone sovereign debt all
contributed to the currency's better tone.
Gains in the euro saw the dollar index .DXY,
which tracks the greenback's performance
against a basket of major currencies, fall below
80.000 from this week's high of 81.313.
Tsutomu Soma, manager of foreign securities at
Okasan Securities, said the euro's rise was
nothing more than short-covering from
overselling late last year on excessively bearish
view on the euro zone.
"Given that the fiscal problems in the region are
unresolved, investors will be cautious about
chasing the currency higher."
NIKKEI FALLS
Equity investors booked profits on recent gains
ahead of the weekend, with stocks of resource
companies like BHP Billiton ( BHP.AX) further
weighed by a pullback in oil and metals prices.
Japan's Nikkei average (.N225) shed 0.9 percent,
a day after reaching an eight-month high, while
stocks elsewhere in Asia .MIAPJ0000PUS were
flat.
Australia's S&P/ASX 200 index (.AXJO) nudged
up 0.1 percent and Hong Kong's Hang Seng
index ( .HSI) put on 0.2 percent.
China's Shanghai Composite Index (.SSEC) fell
nearly 1 percent on speculation of further policy
action, which often emerges on Fridays as the
central bank tends to announce its decisions at
the weekend.
"This worry has led the index down and banking
shares are affected," said Cao Xuefeng, head of
research at Huaxi Securities in Chengdu.
"But we think the possibility of policy tightening
is relatively small ahead of key data (due on
January 20)."
Copper fell 0.3 percent to $9.585 per metric ton,
while U.S. crude was 0.3 percent lower at
around $91 a barrel.
Source: Http://us.mobile.reuters.com/article/idUSTRE70D1FB20110114?ca=rdt
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