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GLOBAL MARKETS-Tumbling dollar shakes stocks, bonds
Fri, Nov 24 2006, 10:16 GMT
http://www.reuters.com
By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 24 (Reuters) - The dollar plunged against major currencies on Friday, pulling the rug from under European stocks as the euro soared and sent investors scuttling into selected safe havens.
European stock indexes were down more than 1 percent, raising questions about whether the steady rises on global equity markets and general lack of volatility in financial markets had hit a wall.
Buoyed by signs of solid euro zone economic growth and likely higher interest rates, the euro broke through the psychological barrier of $1.30 <EUR> for the first time in 1-1/2 years as the dollar weakened across the board.
Britain's pound was up 0.8 percent at a near two-year high above $1.93 <GBP>, and the dollar was 1 percent lower against the Swiss franc <CHF>, and down a third of a percent against the yen <JPY> at 115.9 yen.
Beyond the major players, Russia's rouble hit a 7-year high against the U.S. currency.
"The (economic) data is coming in stronger in the euro zone," said Mansoor Mohi-Uddin, currency strategist at UBS. "The U.S. data is on the weak side."
Prospects of a slowdown in the U.S. economy and potentially lower U.S. interest rates have combined with concerns about fundamental economic imbalances to put the dollar under pressure. However, if the current decline lasts, a soaring euro could lower the horizon for European Central Bank interest rate hikes, changing the dynamics.
Many investors, meanwhile, have been wondering how long the currently benign financial market climate can last, expecting a trigger of some sort to shake things up.
STOCKS, BONDS
There were signs of some kind of shake up on European stock markets, where worries about the stronger euro's impact on business and exports sent stocks sharply lower.
The pan-European FTSEurofirst index <FTEU3> of 300 leading shares and the DJ Euro STOXX 50 <STOXX50E> were both down 1.2 percent with the French CAC 40 <FCHI> off 1 percent and Germany's DAX <GDAXI> down 1.3 percent.
Investors were looking hard at specific sectors that could be impacted.
The DJ Stoxx auto sector index <SXAP> fell 2 percent and headed losers, with BMW <BMWG> down 3 percent and DaimlerChrysler <DCXGn> falling 2.5 percent. Siemens <SIEGn> also declined 2.5 percent.
"The two areas that typically stand out are autos and industrial goods," says Ian Scott, strategist at Lehman Brothers. "These are the areas that statistically tend to show the highest sensitivity to currency movements."
Euro zone government bond futures marked a six-week high as investors sought both safety and currency advantage.
The December Bund future <FGBLZ6> was up 39 ticks on the day at 118.36. Earlier, the contact hit 118.47, its highest since an intraday peak of 118.60 on October 6.
