Empire Global FX - empireglobalfx.com

[EmpireGlobalfx]

Euro hits 8-mth low as Greek woes deepen

(Reuters) - The euro sank to an eight-month low against the dollar on Monday and is poised to fall further after the Greek government said the debt-ridden country will miss a deficit target set just months ago in a massive bailout package.

Traders and analysts said that with Europe divided over the best cure for the debt crisis and with the possibility of a Greek default looming larger than ever, the euro was likely to grind lower in the coming days.

"A Greek default is a sort of Pandora box no one wants to open. While some markets seem to have priced in such possibility, it looks like euro has still some way to go should it happen," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The euro dived as deep as $1.3323, from $1.3418 in New York on Friday, before nudging back up to $1.3344. The single currency lost 7 percent in September, its largest monthly drop since November 2010.

It also fell to a one-week low against the yen at 102.98, moving a notch closer to a decade low at 101.95 yen.

If Greece defaults on its debt, Ino said he thought the euro could initially fall to $1.32 and would then quickly move toward $1.30.

Underscoring jitters over European financial institutions, reports emerged that ministers from France and Belgium would meet to shore up the balance sheet of troubled financial services group Dexia.

Making matters worse, Germany's finance minister ruled out a higher contribution to the euro zone's rescue fund beyond an already approved 211 billion euros ($281.3 billion), while a key German coalition member of parliament said "Greece is bankrupt."

For now, technical support for the single European currency lies at January lows around $1.3250-80 and then in the $1.3250-00 zone, formed by trend channels, internal wave targets and Fibonacci projection objectives.

This support area combined with the strong resistance on the dollar index at 78.75-90, formed by a cluster of highs and lows on the daily charts, has the capacity to provoke a correction to the euro's decline from $1.4939.

Greece will miss a deficit target despite severe austerity measures, although inspectors from the IMF, EU and European Central Bank --the troika--are widely expected to release the next aid package.

While all eyes will be on the inspectors' forecasts for 2012-2014, Greek bond holders may have to take even larger haircuts, according to some reports. [ID:nL5E7KU270]

Euro zone finance ministers are expected to discuss various plans about Greece and the rescue fund later on Monday.

Dexia, which received a combined 6 billion euro bailout from Belgium and France at the height of the financial crisis in 2008, has been badly hit by its huge exposure to Greece as well as the freeze in the inter-bank lending markets.

EDGING HIGHER

The dollar index hit an eight month high, edging up 0.5 percent to 78.888.

The greenback also gained a little on the yen, adding 0.1 percent to 77.10 yen after breaking above its 55-day moving average at 77.17 for the first time since its spike after intervention on August 4. Stop losses loom around 77.30 yen, traders said.

Although the dollar failed to maintain early gains above 77.17, a close above the mark could improve sentiment toward the pair, especially as seasonal selling before end-Sept book-closings by Japanese exporters has run its course.

Tokyo dealers also reported macro funds building dollar-long positions and analysts said that if the current crisis deepened, this time the yen could weaken versus the dollar, unlike the global financial crisis in 2008.

"Contrary to what happened during the global financial crisis in 2008, this time the yen carry trade has not been as active," said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo, adding that the dollar may strengthen to 78-79 yen over the next two weeks, although other yen crosses were likely to soften.

PMI numbers from China and the export numbers from Korea suggest global demand has not eased as quickly as some investors had feared in recent weeks, but this failed to make much of an impact on financial markets.

The Australian and New Zealand dollars were off to a rocky start on Monday with the Aussie at $0.9665.

European manufacturing PMI will be released on Monday and another deterioration below the key 50 level could see the euro sink further. It is also a big week for U.S. data with ISM Manufacturing on Monday and non-farm payrolls on Friday.

 

[EmpireGlobalfx]

Gold rises for third day after Greece rocks markets

(Reuters) - Gold headed for its largest one-day rise in nearly a month on Monday and silver climbed almost 5 percent after Greece warned it will miss deficit targets set to avoid bankruptcy, unleashing a sell-off in equities and commodities.

European stocks slid nearly 2 percent .STOXX, while U.S. crude futures fell 2.1 percent and palladium dropped 3.3 percent to hit one-year lows after Greece said it will miss the deficit targets set in July.

Gold has assumed a more habitual trading pattern of rising in times of uncertainty after staging its largest monthly drop since the credit crunch of 2008 in September as the escalating Greek crisis prompted investors to seek safety in the dollar.

Spot gold was up 2 percent at $1,655.19 an ounce at 1350 GMT. U.S. gold futures for December delivery were up 2.2 percent to $1,657.40 an ounce.

"The environment for gold is still kind of perfect," said Ronald Stoeferle, gold analyst at Erste Group. "We have negative real interest rates more or less all over the world, there's extreme systemic risk, and there is a very fundamental need for a safe-haven currency."

Gold's status as a haven has not been damaged by last month's sharp correction, he added.

"We're still up (16.5 percent) in 2011. Compared to the equity markets, that's a pretty nice outperformance," he said. "Corrections like this are healthy for the long-term uptrend."

On the currency markets, the euro slipped to within sight of an eight-month low against the dollar as mounting concerns of a Greek default deepened investor worries about the health of the euro zone's banking sector.

Financial markets are awaiting a spate of events this week, including key U.S. non-farm payrolls data on Friday and the European Central Bank's interest rates decision on Thursday.

The ECB is expected to leave benchmark euro zone rates on hold this week and signal a shift in its interest rate-rise cycle after a raft of weak economic data and a deterioration in funding conditions for some of the bloc's indebted nations.

Also on the slate, Federal Reserve chairman Ben Bernanke is scheduled to testify on the economic outlook to the Joint Economic Committee on Tuesday.

The head of the U.S. central bank put markets on notice last week, signaling that despite already having spent trillions of dollars to stimulate growth, the Fed would do more if inflation falls too far and the threat of deflation grows.

PRICE DROP PROMPTS PHYSICAL BUYING

The gold price fell nearly 11 percent in dollar terms in September, its largest one-month fall since October 2008. On a quarterly basis, however, the third three months of 2011 marked gold's strongest performance since the last quarter of 2010.

Gold's 20 percent fall from September's record high at $1,920.30 an ounce has tempted physical consumers of the metal back into the market, even though speculators cut their investment the precious metal in favor of owning U.S. dollars.

The latest data from the Commodity Futures Trading Commission on holdings of gold futures shows speculators cut their position to its lowest since the second quarter of 2009, highlighting the move from hard assets to U.S. dollars.

"After the recent washout, gold positioning is far from extended and this is quite a bullish signal for price strength ahead," said UBS in a note. "The 'clean' nature of current spec positions, along with physical and long-term demand, is creating a very healthy foundation for gold to climb from."

Markets are closed in number two gold consumer China for a public holiday. But demand from other key gold-buying regions has picked up in the last couple of weeks, pushing Asian premiums to their highest since the start of the year.

In the world's third largest consumer, Turkey, gold imports hit 18.23 tonnes in September, their highest in three years, data from the Istanbul Gold Exchange showed.

Silver was up 2.7 percent at $30.68 an ounce, having earlier risen as high as $31.38. It fell by nearly 28 percent in September, its biggest one-month drop since the early 1980s.

Echoing weakness in other industrial commodities, platinum fell 1.9 percent to $1,495.74 an ounce, while palladium dropped 3.4 percent to near one-year lows at $589.25.

 

[EmpireGlobalfx]

GLOBAL MARKETS-World stocks, euro slide on Greece default fears

* US stocks fall more than 1 pct as financials weigh

* Euro drops to 8-1/2 month low versus dollar

* Bank shares down in Europe on fears of Greece default



NEW YORK, Oct 3 (Reuters) - World stocks fell on Monday and the euro slid to an 8-1/2 month low versus the dollar as growing fears of a Greek default stoked appetite for safe-haven U.S. Treasury bonds.

Better-than-expected U.S. economic data initially cushioned a fall in U.S. stocks as Wall Street indexes briefly turned positive after the release of a key manufacturing activity index. But they fell more than 1 percent in the afternoon as financials weighed.

Bank shares were also battered in Europe as investors feared the impact of a Greek default on holders of the country's bonds, such as Franco Belgian financial group Dexia (DEXI.BR), whose stock slumped more than 10 percent.

Greece admitted it will miss its deficit target of 7.6 percent this year, making a Greek debt default look more likely. In a draft budget sent to parliament on Monday, the government forecast a deficit of 8.5 percent of gross domestic product for 2011.

"This news isn't surprising, but if Greece continues to have problems, that could really drag Europe into recession, and possibly the U.S. as well," said Randall Warren, chief investment officer of Warren Financial Service in Exton, Pennsylvania.

European policymakers appeared no nearer to agreeing on a definitive solution to the crisis. Officials meeting on Monday were discussing ways to leverage the bloc's rescue fund and pressure Greece to implement agreed structural reforms. For details, see [ID:nL5E7L20LD].

"Ultimately, Greece would need to see its debt written down by more and with that you need probably some kind of shoring up of the banking sector," said Alec Letchfield, chief investment officer at HSBC Asset Management.

U.S. stocks extended losses in the afternoon as the KBW bank index .BKX fell 2.4 percent. On Friday, stocks closed their worst quarter since 2008.

The Dow Jones industrial average .DJI lost 184.02 points, or 1.69 percent, at 10,729.36. The Standard & Poor's 500 Index .SPX was down 22.41 points, or 1.98 percent, at 1,109.01. The Nasdaq Composite Index .IXIC was down 53.89 points, or 2.23 percent, at 2,361.51.

The MSCI All-Country World index .MIWD00000PUS was 2 percent lower, near a 14-month low set in September. The FTSEurofirst 300 .FTEU3 of top European shares ended 1.2 percent lower.

The October-December period is, traditionally, the best quarter for equities. Reuters data shows that since 1971, world stocks have on average risen 3.7 percent in the fourth quarter.

Dexia closed 10.16 percent lower after credit agency Moody's announced a rating review for possible downgrade on concerns about liquidity. French daily Les Echos said on Friday that Belgian and French finance ministers would meet to discuss ways of shoring up the firm's balance sheet.

U.S. crude oil CLc1 fell 1.5 percent to $77.99 a barrel.

The euro EUR=EBS fell as low as $1.32372 EUR=EBS on trading platform EBS, a fresh 8-1/2-month low. It was last down 0.9 percent at $1.3261.

Against the safe-haven yen, the euro was down 0.9 percent at 102.194 yen EURJPY=EBS on EBS, not far from its decade low of 101.946 struck in September.

"Euro zone bank issues remain a big issue and we expect the euro's downside to continue," said George Saravelos, G10 FX strategist at Deutsche Bank.

The benchmark 10-year U.S. Treasury note US10YT=RR was up 33/32 in price, causing its yield to fall to 1.802 percent. Treasuries prices were also supported by the Federal Reserve's first bond purchase for Operation Twist, its latest bond program aimed at helping the U.S. economy.

 

[EmpireGlobalfx]

Moody's slashes Italy credit rating

(Reuters) - Moody's lowered its rating on Italy's bonds by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt and warning that further downgrades were possible.

The agency downgraded Italy to A2 from Aa2, a lower rating than it holds on Estonia and on a par with Malta and kept a negative outlook on the rating.

The euro pared gains against the dollar and Japanese yen immediately following the announcement which comes after Moody's rival Standard and Poor's cut its rating on Italy by one notch to A/A-1 on September 19.

The cuts underline growing investor concern about the euro zone's third largest economy, which is now firmly at the center of the debt crisis and dependent on help from the European Central Bank to keep its borrowing costs under control.

"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody's said in a statement.

"The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets," it said.

It added that Italy's rating could "transition to substantially lower rating levels" if there were long term uncertainty over the availability of external sources of liquidity support.

Italy's mix of chronically low growth, a public debt mountain amounting to 120 percent of gross domestic product and a struggling government coalition has caused mounting alarm in financial markets.

Moody's decision came as little surprise after the agency said on September 17 that it would finish a review for possible downgrade of its rating on Italy within a month.

But it highlights the growing vulnerability of the euro zone, which is already struggling to contain the crisis in the far smaller Greek economy and which would be overwhelmed by a crisis of a similar scale in Italy.

"It's not that unexpected but it doesn't help the situation at all," said Robbert Van Batenburg, Head of Equity Research at Louis Capital in New York.

"They have already traded as if there was somewhat of a downgrade in the works, so it will probably force Italian policymakers to embark on more austerity programs. It will put another fiscal strait-jacket on them."

VULNERABILITY

Moody's said the likelihood of a default by Italy was "remote" but it said the overall shift in sentiment on the euro area funding market implied a greater vulnerability to a loss of market access at affordable rates.

Italy's relatively modest budget deficit, conservative financial system and high level of private savings had kept it on the sidelines of the euro zone crisis while countries like Greece and Ireland were sucked down.

"Italy is being punished not because its finances suddenly deteriorated, but because investors have become more sensitive to its long-standing weaknesses," said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.

He said markets appeared to be focusing on the weakened center-right government's lack of progress in stimulating the stagnant economy, which many analysts expect to stall or even slip into recession next year.

"The bond markets are more concerned about Italy's ability to grow than its commitment to reducing a fiscal deficit that is already one of the smallest in the euro zone," he said.

Prime Minister Silvio Berlusconi shrugged off the downgrade immediately, saying the Moody's announcement had been expected and the government was committed to its public finance target, which sees the budget being balanced by 2013.

The government last month pushed through a 60 billion euro austerity package -- bringing forward its original balanced budget target by one year -- in return for support for its battered government bonds from the ECB.

Berlusconi's center-right coalition has been deeply divided over policy and personal issues and further distracted by an array of scandals surrounding the prime minister.

Opposition leaders have called repeatedly for the government to resign over its handling of the economy and there is widespread speculation that Berlusconi could be forced out of office before his term expires in 2013.

Italy's borrowing costs have soared over the past three months and have only been kept under control by the ECB support but in recent weeks they have begin to climb back to potentially dangerous levels.

An auction of long term bonds last month saw yields on 10 year BTPs rise to 5.86 percent, their highest level since the introduction of the euro more than a decade ago.

The center-right government has been under heavy pressure over its handling of the escalating crisis and recently cut its growth forecasts through 2013.

It is now expecting the economy to expand by just 0.6 percent next year, down from a previous projection of 1.3 percent.

 

[EmpireGlobalfx]

Buyers rush in as Wall Street toys with bear market

(Reuters) - Investors rushed in to buy technology and other beaten-down sectors as the S&P 500 dipped in and out of a bear market on Tuesday, and a late rally drove the index to its largest gain in more than a week.

Markets once again turned on news out of Europe.

Reports that European finance ministers agreed to prepare action to safeguard their banks, following the first lender bailout as a result of the crisis, were cited as giving stocks a boost heading into the close.

Others pinned the comeback on technical levels and on bargain hunting after the broad S&P 500 briefly fell more than 20 percent from its 2011 closing high set four months ago.

"To me, it looked mostly technical. It looked like the capitulation on the sell side," said Keith Springer, president of Springer Financial Advisors in Sacramento, California.

He said the reports out of Europe just added to the buying frenzy that had started earlier.

"You could see it (the market) starting to turn anyway and that gave people an excuse" to buy, he said.

Chip makers and large-cap technology companies led the way even after Apple Inc fell 0.6 percent to $372.50 as the unveiling of its latest iPhone didn't live up to the hype. Apple shares had earlier fallen more than 5 percent.

Volume increased late in the day - with nearly 15 percent of the day's composite trading taking place in the last half hour of the session. The Dow industrials rose 345 points in the last hour of trading.

The Dow Jones industrial average gained 153.41 points, or 1.44 percent, to 10,808.71. The S&P 500 gained 24.72 points, or 2.25 percent, to 1,123.95. The Nasdaq Composite gained 68.99 points, or 2.95 percent, to close at 2,404.82.

Despite the large gains, it is still not clear whether the latest reports mean there is progress in Europe's effort to keep its sovereign debt crisis from spreading out of Greece and into the banking system.

The European finance ministers put their heads together for a plan to shore up their banks after collapsing confidence in municipal lender Dexia forced France and Belgium to rush to its aid.

The Dexia bailout came as euro-zone finance ministers delayed a vital aid payment to debt-stricken Greece, which could run out of cash shortly.

Investors fear that a Greek default will force banks to write down billions of dollars from their books and kick-start another credit crisis like the one that brought lending to a halt three years ago and generated a recession.

The U.S. bank sector index, down nearly 30 percent since the 2011 market high hit on April 29, posted strong gains. The index finished the session up 4.1 percent.

Morgan Stanley shares gained 12.3 percent to $14.01 but are still off 48.5 percent this year. Shares of Bank of America rose 4.2 percent Tuesday to $5.76.

About 13.1 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq -- more than 60 percent above the daily average so far this year of 8 billion shares.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, about three stocks rose for every one that fell.

 

[EmpireGlobalfx]

Stocks rise on hopes for bank support steps

(Reuters) - World stocks rose for a second day Thursday while government bonds fell as expectations grew policymakers would take steps to support European banks, under threat from the impact of a possible Greek default.

German Chancellor Angela Merkel said Wednesday Berlin was ready to recapitalize its banks if needed, adding to pledges by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default [ID:nL5E7L53W7]

The Financial Times reported Thursday that the European Banking Authority, mid-way through a two-day crisis meeting to assess the potential hit of mass sovereign restructurings, is re-examining the strength of the region's banks.

Investors are focusing on euro zone and UK central bank policy meetings for hints on future monetary easing.

A majority of analysts predict the European Central Bank will refrain at least until next month from cutting interest rates and the Bank of England from pumping more money into the economy. But there are those in both markets who see a risk of such moves already Thursday and the ECB is expected to take further steps to help banks.

Hopes for near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

"Significant talk of bank recapitalization is certainly the driving factor behind positive sentiment," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"But there is still a lot of uncertainty. Speed is of the essence and that would make a difference. If we see another week or so go by without some significant step forward, that is likely to inject nerves back into the markets."

The MSCI world equity index .MIWD00000PUS was up 0.9 percent, having hit a 15-month low earlier this week. The index is around 5.6 percent above this low.

U.S. stock markets also finished higher Wednesday. VIX index .VIX, Wall Street's fear gauge, fell 7 percent to 37.81 Wednesday, down sharply from this week's peak of 46.88, lending support to investors cautiously putting some risk back on in the near-term.

European stocks .FTEU3 rose 0.4 percent and emerging stocks .MSCIEF added 2.2 percent.

U.S. crude oil gained a quarter percent to $79.91 a barrel.

Bund futures fell slightly on the day.

Spain will sell up to 4.5 billion euros of bonds, with comments from the IMF that it may buy peripheral bonds seen helping, although the fund later stepped back from a firm pledge to do this.

The dollar .DXY against a basket of major currencies

The euro fell 0.2 percent to $1.3324.

"Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking in Tokyo.

 

[EmpireGlobalfx]

Euro steady, market holds breath before ECB

(Reuters) - The euro held steady against the dollar on Thursday as uncertainty gripped markets before an ECB meeting that could see rates cut or the rebirth of long-term lending to banks, while Europe's efforts to resolve its debt crisis and solid U.S. data provided tentative support for riskier assets.

The euro, last at $1.3331, maintained most of its overnight gains made after Germany said it would help its own banks if necessary and opened the possibility of using a regional bailout fund to strengthen the euro zone banking system.

Investor focus now shifts squarely to the European Central Bank's monetary policy meeting, whose outcome -- due at 7:45 a.m. EDT -- seems increasingly uncertain.

The ECB has been widely expected to keep rates unchanged at 1.5 percent, but calls for a cut have grown louder amid signs the euro zone economy is deteriorating further and as Greek default fears weigh heavily on confidence in the bloc's banks.

"Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking.

Kitakura cited measures such as more liquidity, bringing back the ECB's 12-month tender last used at the end of 2009, and, possibly, the resurrection of its program for buying covered bonds.

In a Reuters survey taken last week, 56 out of 75 economists said they expected the ECB to hold rates this time around, though 13 saw a 25 basis-point cut and 7 predicted a 50 basis-point cut.

JP Morgan Chase is forecasting a drastic 50 basis point cut by the ECB saying the bank's move to "balanced" inflation risk at the last meeting came sooner than expected especially since the "inflation hump" is far from over.

"Because the market remains split in its views on what the ECB should do, it's hard to say to what extent any move is already priced in the euro," said a trader for a Japanese bank.

He added that if there is no cut, but additional measures like more liquidity are implemented, the euro could jump to take out stop losses looming between $1.3400 and $1.3450.

A decisive break above that level could pave the way for a correction toward $1.3680 -- the 38.2 percent retracement of the $1.4550-$1.3145 slide.

The single currency has lost about 10 percent against the dollar since that late August peak at $1.4550, but stands well-off a nine-month trough of $1.3145 struck this week.

WAITING FOR SOLUTION

European finance ministers agreed to safeguard banks, many of which could face heavy losses if a planned second bailout package for Greece does not go ahead, after France and Belgium agreed to bail out the debt crisis' first banking casualty, Dexia.

The countries are expecting to finalize the rescue of the troubled lender, but disagreements remain over details of the plan as the two countries try to defend their respective national interests.

"The crisis is far from over and I'm still negative on the euro looking beyond the ECB," said Minori Uchida, senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the currency may eventually drift below $1.30 in the coming days.

The Netherlands votes on widening the role of the EFSF euro zone bailout fund, as agreed in July, after Malta delayed its ratification of the facility, while Slovakia -- the last country to vote on the issue next week -- is bitterly divided over it.

"They are voting over it, but these measures are already seen as not satisfactory and the wholistic structural solution is still far away," said Uchida.

The British pound shed 0.3 percent to $1.5425 as the Bank of England was due to meet on Thursday amid talk it may open the way for more quantitative easing.

The single currency hovered around 1.2318 Swiss francs, having hit its highest since May on Wednesday.

With markets highly concerned about the threat of a systemic shock in Europe, they barely took notice of another round of better-than-expected U.S. data showing the economy is still growing, albeit slowly.

The recent flow of data suggests fears of recession in the U.S. and a hard landing in China are possibly overdone. A good number from Friday's U.S. non-farm payrolls could set the stage for a rally in risk assets.

The dollar index came off a nine-month high of 79.838 earlier in the week to last trade at 79.028. It was steady against the yen at 76.74, off a three-week peak of 77.26 struck on Monday.

 

[EmpireGlobalfx]

Euro rises on Barroso comments, ECB could support


Barroso comments on recapitalising banks push euro to session high

* Rates seen on hold, liquidity measures likely from ECB

* Euro spikes versus Swiss franc, traders cite media report



LONDON, Oct 6 (Reuters) - The euro climbed versus the dollar on Thursday after a top euro zone official said policymakers are proposing coordinated action to recapitalise banks, raising expectations the region's banking sector would be ringfenced from the Greek debt crisis.

The euro was last up 0.3 percent on the day versus the dollar, near a session high of $1.3397. It jumped sharply following European Commission President Jose Manuel Barroso comments, and stops were cited above $1.3420.

Investors were also focused on the European Central Bank meeting where policymakers are expected to provide longer-term funding to banks and keep interest rates on hold.

But there was some speculation of a rate cut and that uncertainty meant some investors were more likely to go into the announcement at 1145 GMT with positions squared.

Some market players were reluctant to initiate fresh positions ahead of ECB President Jean-Claude Trichet's last policy meeting. He could pave the way for a cut before year-end, even if rates are kept on hold at 1.5 percent today.

"We expect there will be no rate cut today which should be some kind of support for the euro as long as the market does not come to the conclusion the ECB is behind the curve and not taking action quickly enough," said Lutz Karpowitz, currency analyst at Commerzbank.

Calls for a cut have grown louder amid signs the euro zone economy is deteriorating further and as Greek default fears weigh heavily on confidence in the bloc's banks.

In a Reuters survey taken last week, 56 out of 75 economists said they expected the ECB to hold rates this time around, though 13 saw a 25 basis-point cut and 7 predicted a 50 basis-point cut.

Analysts said other measures to support Europe's banking system could include more liquidity, bringing back the ECB's 12-month tender last used at the end of 2009, and possibly the resurrection of its programme for buying covered bonds.

A trader at a Japanese bank said if there was no cut, but additional measures like more liquidity are flagged, the euro could rise, taking out stop losses between $1.3400 and $1.3450.

A decisive break above that level could pave the way for a correction towards $1.3680 -- the 38.2 percent retracement of the late August to early October slide from $1.4550 to $1.3145, a nine-month trough struck this week.

WAITING FOR SOLUTION

Optimism that Germany was taking steps to safeguard the financial sector and improved U.S. economic data provided some support for the single currency after a volatile week in which the French and Belgian governments pledged to rescue troubled bank Dexia .

European finance ministers have agreed to safeguard banks, which could face heavy losses if a planned second bailout package for Greece does not go ahead, but analysts said event risk for the euro remained high.

"The crisis is far from over and I'm still negative on the euro looking beyond the ECB," said Minori Uchida, senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the currency may eventually drift below $1.30 in the coming days.

The single currency jumped to a four-month high of 1.2430 Swiss francs . Traders cited media reports quoting a senior Swiss official as saying a higher exchange rate floor in euro/Swiss would be better for the economy.

Sterling fell 0.2 percent versus the dollar to $1.5438 ahead of a Bank of England rate decision, also on Thursday, amid talk policymakers may open the way for more quantitative easing.

Once ECB and BoE rate decisions are out, market attention is likely to focus on the U.S. economy. A good number from Friday's U.S. non-farm payrolls could set the stage for a rally in risk assets.

The dollar index came off a nine-month high of 79.838 earlier in the week to last trade at 79.055. The greenback was steady against the yen at 76.71 , off a three-week peak of 77.26 struck on Monday.

 

[EmpireGlobalfx]

World stocks keep firm tone after BoE, eyes on Trichet

(Reuters) - World stocks kept a firmer tone on Thursday after the Bank of England surprised the market by launching a fresh round of monetary easing this month, before cutting gains as the European Central Bank left interest rates on hold.

The euro hit the day's low and German government bonds rose after the ECB held interest rates at 1.5 percent, disappointing some who had expected a cut in borrowing costs this month.

Such expectations grew after the Bank of England pledged to buy a bigger-than-expected 75 billion pounds in assets to bolster the UK economy -- a move that pushed sterling to a 14-month low against the dollar.

Investors are now focusing on ECB President Jean-Claude Trichet's news conference at 1230 GMT -- his last, and at which he is expected to announce a set of fresh liquidity measures to help banks.

Growing hopes that policymakers would take coordinated steps to support European banks, under threat from the impact of a possible Greek debt default, kept the underlying tone positive for risky assets.

European Commission President Jose Manuel Barroso proposed a coordinated recapitalization of banks to restore confidence, while the European Banking Authority said it was examining the resilience of lenders' capital positions.

Optimism over near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

"It's a good injection of capital. We now just need to see a coordinated effort from the rest of Europe to sort out the recapitalization of European banks and it should form a decent base to move forward," said IG Index sales trader Yusuf Heusen.

"It takes away quite lot of risk. This is positive for the market."

The MSCI world equity index .MIWD00000PUS rose 1 percent, off the day's highs, having hit a 15-month low earlier this week. The index is now around 6 percent above that point.

U.S. stock futures were up 0.1 percent, pointing to a slightly higher open on Wall Street.

European stocks .FTEU3 rose 1 percent and emerging stocks .MSCIEF added 2.6 percent.

The dollar .DXY rose 0.3 percent against a basket of major currencies. The euro fell 0.5 percent to $1.3264.

"The ECB is now likely to prepare an interest rate cut within the next four months, by March at the latest," said Berenberg Bank economist Holger Schmieding.

Sterling hit a 14-month low of $1.5270 after the BoE announcement.

Bund futures erased earlier losses to rise 17 ticks on the day.

The cost of insuring peripheral euro zone debt against default fell earlier. Five-year credit default swaps on Italian government debt fell 18 basis points to 450 bps, according to data monitor Markit.

Equivalent CDS prices fell for Spain, Portugal and Belgium.

U.S. crude oil gained 0.7 percent to $80.28 a barrel.

 

[EmpireGlobalfx]

Wall Street extends rally after payrolls data

(Reuters) - Stocks opened higher, rising for a fourth day on Friday after stronger-than-expected payrolls data suggested the economy may avoid another recession.

The Dow Jones industrial average .DJI gained 80.19 points, or 0.72 percent, to 11,203.52. The S&P 500 .SPX rose 4.50 points, or 0.39 percent, to 1,169.47. The Nasdaq Composite .IXIC added 0.71 points, or 0.03 percent, to 2,507.53.