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Wednesday September 23, 03:10 PM
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Global shares rise, dollar near 1-yr low
By Atul Prakash
LONDON (Reuters) - World stocks drifted higher on Wednesday to hover near a recent 11-month high and the dollar stayed around a one-year low, with investors trading cautiously ahead of a Federal Reserve policy decision later in the day.
A weaker U.S. currency helped gold to extend gains and move closer to last week's 11-month high and limited crude oil's decline, which fell towards $71 a barrel on an industry report showing a surprise build in U.S. crude oil stockpiles.
The MSCI world equity index was up 0.2 percent, while the FTSEurofirst index of top European shares rose 0.3 percent on the back of stronger financial stocks. The MSCI index has risen 28 percent so far this year.
But investors remained cautious before a decision by the Fed, which is widely expected to hold overnight lending rates at close to zero percent and repeat its intention to keep rates exceptionally low for an extended period in a statement at around 1815 GMT, after the U.S. central bank's two-day policy meeting draws to a close.
"The markets are treading water, with neither the bulls or the bears taking the lead," said John Murphy, analyst at ODL Securities.
"It feels as if it is easier for investors to adopt a wait-and-watch approach until there is a definite move either to the upside or the downside."
The Fed is also expected to take note of an improving economy, while cautioning that high unemployment puts the recovery at risk. It is also expected to keep its massive financial support for the economy in place.
European stocks got support from surveys showing euro zone services business grew for the first time in 16 months in September and factory output rose for the second month running, suggesting the bloc has pulled out of recession.
Sentiment also improved after U.S. Treasury Secretary Timothy Geithner said on Tuesday that the world's biggest economy was at the "beginnings" of a recovery, and the key was to ensure that the recovery was self-sustaining.
A U.S. plan to build a more balanced global economy won support from leaders of some of the largest Western powers on Tuesday, who warned against returning to business as usual once recovery takes hold.
DOLLAR NEAR 1-YR LOWS
The dollar hovered near a one-year low against a currency basket as speculators sold the low-yielding greenback but some in the market expected a pullback in the currency market before the Fed's policy decision.
The New Zealand dollar surged to its highest in 13 months against the U.S. currency after the economy unexpectedly pulled out of recession in the second quarter, fuelling expectations the central bank might have to start raising rates sooner than previously thought.
The jump in the kiwi prompted investors to shift more money into other higher-yielding currencies such as the Australian dollar from the U.S. currency, and helped trigger further speculative dollar selling against other currencies such as the euro and the yen.
"Overall the FOMC and the G20 are unlikely to disrupt the recent positive tone in asset markets and that's likely to see the trends in currency markets resume," said Ian Stannard, currency strategist at BNP Paribas in London.
"I will be looking at the currency pullback I expect today to be very much providing a buying opportunity for the pro-cyclical and commodity currencies," he said.
Most euro zone government bond yields edged higher ahead of a 7-billion euro issue of German five-year debt. The sale of a new five-year Bobl will attract market attention and is likely to weigh on prices in concession-building prior to the sale.
European credit default swaps opened tighter, with the investment-grade index breaking through the 80 basis-point mark and demand for new issues showing little sign of abating.
(Additional reporting by Emelia Sithole-Matarise; Editing by Victoria Main)
(For more news on Reuters Money click http://www.reutersmoney.in)
