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While you were sleeping: US shares pare gains

Tuesday 22nd June 2010

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Stocks in the US gave up early gains as investors digested the impact of China’s decision to relax the yuan’s fixed rate to the US dollar.

In late trading, the Dow Jones Industrial Average fell 0.33%, the Standard & Poor’s 500 Index declined 0.57% and the Nasdaq Composite dropped 1.02%.

Global shares from Tokyo through Europe advanced after the People’s Bank of China said it would end a two-year currency peg to the U.S. dollar adopted during the global financial crisis to protect exporters.

China, the world’s largest copper consumer and second-biggest user of oil after the U.S., signalled the change before the G-20 summit in Toronto later this week.

Among the most active stocks on Wall Street were Home Depot, Target, Amazon, Google and Microsoft.

"This move is going to be good for global markets and help the bottom lines of companies with Chinese exposure," Channing Smith, vice president of Capital Advisors in Tulsa, Oklahoma, told Reuters.

"However, markets have had a good run and investors haven't forgotten that we face headwinds with Europe and the labour market."

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 1.88% to 24.40.

The Stoxx Europe 600 Index rose 1.1% to 258.18.

The FTSE 100 gained 0.92%, France’s CAC 40 climbed 1.33% and Germany’s DAX advanced 1.22%.

Among the most active stocks in Europe were BHP Billiton, Rio Tinto and Akzo Nobel.

In Germany, Chancellor Angela Merkel’s government rebuffed US calls to focus on bolstering growth over debt reduction, setting a course for conflict at the G20 meeting.

“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.”

Last week President Obama asked European leaders not to end measures to stimulate growth too soon, saying the focus should be on restoring public finances in the “medium term”.

Germany was holding to G20 commitments on exit strategies from fiscal stimulus, and “not violating international requirements for a coordinated strategy for sustainable growth,” Schaeuble said. “We will face up to the international debate and I think we can do that with a great deal of self- confidence,” he said.

Five days before G20 leaders meet in Toronto, the economic-policy divide between Europe and the US is hardening.

US Treasuries fell. The US will sell US$108 billion in two-, five- and seven- year notes this week.

The 10-year note’s yield rose 3 basis points, or 0.03 percentage point, to 3.25% at 2.49pm in New York, according to BGCantor Market Data.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.23% to 85.90.

The euro rose, climbing to its highest level in about a month after China allowed the yuan to rise to a post-revaluation high.

Spot yuan rose to its highest level since its revaluation five years ago, adding to hopes that a pledge from China on yuan flexibility would begin to reduce global imbalances.

The move will boost China's buying power abroad and is seen as broadly positive for the global economic recovery. It spurred a worldwide rise in commodity and oil prices and boosted riskier assets across the board.

The euro rallied to US$1.2490 versus the U.S. dollar on trading platform EBS, its highest level since May 24. By 0925 GMT, the euro had slipped back to trade with gains of just 0.1% at US$1.2403.

Traders said there were option barriers at US$1.2500 preventing further gains, reportedly being protected by a major Asian sovereign account.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials,  rose 0.29% to 263.69.
Crude oil prices fell. At 1.56pm EDT, US July crude was down 11 cents at US$77.07 a barrel.

The July contract expires on Tuesday and its deficit to the August contract narrowe to around 86 cents from US$1.08 on Friday.

August ICE Brent fell 22 cents to US$78 a barrel.

U.S. July natural gas futures were down 12.7 cents at US$4.870 per million British thermal units.

Gold prices slipped from record highs reached in afternoon trade in Europe, as investors took profits.

Spot gold was bid at US$1,252.15 an ounce at 1425 GMT, against US$1,255.35 late in New York on Friday. U.S. gold futures for August delivery eased US$4.50 to US$1,254.00.

Copper futures jumped 4% on hopes China would buy more of the metal if it revalued its currency, but gains were limited by uncertainty over how flexible the yuan could become, analysts said.

Copper for July delivery gained 12.00 cents, or 4.2%, to US$3.004 per pound by 10.02am EDT (1402 GMT).

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