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While you were sleeping: Short of details, risk remains

Friday 12th February 2010

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The euro extended its slide and stocks were little changed as the rescue plan for Greece remained hard to define.

While European officials said the Greek government had been given a “political” directive to act responsibly, no details of specific actions were provided and might not be until next week. Investors were hoping for details of a bail-out plan.

“Euro area member states will take determined and coordinated action if needed to safeguard financial stability in the euro area as a whole,” European Council President Herman Van Rompuy said in Brussels. “We fully support the efforts of the Greek government and their commitment to do whatever is necessary including adopting additional measures.”

An EU source told Reuters that purchases of Greek bonds by euro zone state-owned banks was an option. Apparently one reason an agreement hasn’t been reached yet was opposition from the Germany government’s coalition partner, the source said.

"The EU news on Greece wasn't all that outstanding, there wasn't a firm plan announced," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. "I would put that in the jawboning category."

At midday, the Dow Jones Industrial Average rose 0.89%, the Standard & Poor’s 500 Index was up 0.76% and the Nasdaq Composite had advanced 1.16%.

U.S. stocks received a boost from signs that the economy was continuing to heal with jobless claims falling faster than expected and home sales advancing in the fourth quarter by 14%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 4.45% to 24.27.

Among the advancers were Philip Morris International and 3M. Limiting gains were Sierra Wireless, down 19%, and ProLogis, down 6.1%.

As for Europe, the Dow Jones Stoxx 600 increased 0.4% to 241.84. The U.K.’s FTSE 100 rose 0.57%. However Germany’s DAX slid 0.59% and France’s CAC 40 declined 0.52%.

Rio Tinto and Rolls-Royce led the advance. Alcatel-Lucent dropped after it cut its profit-margin targets. BT Group, Renault and Air France-KLM also fell.

Commodities prices were mostly higher on hopes for a Greek debt accord and bullish demand outlooks.

Oil in particular received a boost from two reports. The International Energy Agency said on Thursday global oil demand would grow by 120,000 barrels per day (bpd) more than previously expected in 2010 to 86.5 million bpd.

A day earlier, the U.S. Energy Information Administration forecast world oil demand would rise 1.2 million bpd in 2010.

U.S. crude for March delivery was down 10 cents at US$74.42 a barrel by 1530 GMT. London Brent crude rose 27 cents to US$72.81.

Gold futures for April delivery climbed as much as US$18.50, or 1.7%, to US$1094.80 an ounce on the New York Mercantile Exchange’s Comex unit and traded at US$1093.60 at midday in New York. Gold for immediate delivery in London was 1.9% higher at US$1092.95.

Simon Weeks, head of precious metals at the Bank of Nova Scotia, told Reuters that gold was benefiting from fears over the outlook for paper currencies in general.

"People don't really want to be overexposed to dollars, they certainly don't want to be overexposed to euros and so on, and to that extent gold is acting as a currency in its own right," he said.

On the supply side, South Africa's statistics office said gold mine output fell 8.8% in December in volume terms. The republic was the world's third-largest mine producer in 2008 with output of 233.3 tonnes.

Silver for March delivery in New York added 2% to US$15.605 an ounce. Platinum for April delivery gained 0.6% to US$1521.80 an ounce. Palladium for March delivery rose 1.8% to $US420.90 an ounce.

Copper futures for March delivery increased 13.95 cents, or 4.7%, to US$3.1285 a pound on the Comex division of the New York Mercantile Exchange.

Before today, copper slumped 11% this year on demand concerns, according to Bloomberg News. Inventories in warehouses monitored by the London Metal Exchange have climbed 8.6% in 2010.

On the LME, copper for delivery in three months jumped 6% to US$6925 a metric ton (US$3.14 a pound). Zinc, nickel, lead, tin and aluminum also climbed.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.88% to 268.58.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.22% to 80.20.

In midday New York trading, the euro had dropped 0.6% to US$1.3634. Traders are focused on option barriers around US$1.3550 and US$1.3500, which suggests the euro could fall near those levels.

It slid 1.1% to 122.22 yen from 123.56 the previous day. The greenback declined 0.1% to 89.83 yen from 89.94 a day earlier.

The Aussie advanced 0.9% to 79.41 yen and rose 1.1% to US 88.48 cents. New Zealand’s currency appreciated 0.5% to 62.59 yen and rallied 0.6% to US 69.72 cents.

Futures on the Chicago Board of Trade showed a 53% chance the Fed will increase its zero to 0.25% target lending rate by at least a quarter-percentage point by its September meeting, Bloomberg reported, up from 49% odds a week earlier.

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