While you were sleeping: China bolsters euro zone

Friday 28th May 2010

Shares in Europe and the US gained after China said it was committed to investing in Europe allaying concern the debt crisis would worsen.

“Europe has been, and will be one of the major markets for investing China’s exchange reserves,” the State Administration of Foreign Exchange said in a statement on its website overnight.

A day earlier, China Investment Corp President Gao Xiqing said his fund wasn’t planning to reduce investments in Europe as a result of its recent sovereign debt crisis.

“We will keep our allocation in Europe,” Gao said at an Organisation for Economic Cooperation and Development conference in Paris. “For a while our people were debating whether we should underweight Europe because of what was happening in the past few months. Our conclusion is that we are not going to underweight it, but we’re not going to overweight it, either.”

“Today’s statement is comforting,” Francisco Salvador, a strategist at Iberian Equities in Madrid, told Bloomberg News. “This is one of the world’s leading holders of foreign reserves and ultimately China doesn’t want to see a further weakening of the euro.”

Also bolstering equities overnight was the Kuwait investment Authority, which affirmed it too was a long-term investor in Europe.

In late trading, the Dow Jones Industrial Average rose 2.27%, the Standard & Poor’s 500 Index gained 2.64% and the Nasdaq Composite advanced 3.16%.

Energy shares led gains as BP Plc temporarily stopped the flow of oil from a Gulf of Mexico leak, according to US Coast Guard officials as reported by Bloomberg News.

Among the most active stocks were Transocean Ltd, Halliburton Co, BP, Alcoa Inc and Exxon Mobil Corp.

The Chicago Board Options Exchange Volatility Index, or VIX which is known as Wall Street’s ‘fear gauge’, plunged 15% to 29.78.

The benchmark Stoxx Europe 600 Index climbed 3% to 244.79.

The UK’s FTSE 100 gained 3.12%, France’s CAC 40 rose 3.42% and Germany’s DAX climbed 3.11%.

Among the most actives were Man Group Plc, Ageas and BP Plc.

Ageas, the insurer formerly known as Fortis, rallied 14% after cutting its holdings of southern European government bonds.

The euro gained. Analysts said the comments from China and Kuwait were a catalyst for investors to cover short positions in the euro, which has taken a beating the last few months.

"A lot of this euro rally is due to short-covering given a 'risk on' environment," Boris Schlossberg, director of FX research at GFT in New York, told Reuters.

"It's not because investors are more upbeat about the future. I think they are relieved things are not getting any worse and there are no exogenous shocks out there for the time being."

In midday New York trading, the euro rose 1.3% to US$1.2321, having climbed as high as US$1.2343 earlier, according to EBS data.

The euro rallied 2.2% against the yen to 111.75 yen. The U.S. dollar rose 1.1% to 90.79 yen.

The Dollar Index, which measures the greenback against a basket of six major currencies, dropped 1.14% to 86.13.

US Treasuries fell, pushing yields up from near one-year lows, as easing concern about Europe’s sovereign debt crisis lowered the safe-haven appeal of US$31 billion in seven-yearnotes sold at auction.

The notes drew a yield of 2.815%, compared with a forecast of 2.802% in a Bloomberg News survey of seven of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.88, versus an average of 2.76 for the previous 10 sales.

The yield on the current seven-year note rose 13 basis points to 2.79% at 1.17pm in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note rose 14 basis point to 3.33%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.71% to 257.16.

Crude oil prices rose on gains in Asian and European equity markets and after the previous day's US official oil data showed an increase in fuel demand.

By 1321 GMT, US crude futures for July rose US$1.52 to US$73.03 a barrel.

ICE Brent crude futures gained US$1.37 to US$73.11.

On Wednesday US crude rose 4%, its biggest one-day percentage gain in nearly eight months, after data from the Energy Information Administration showed an increases in US demand for refined oil products such as gasoline and diesel.

Gold rose to one-week highs.

Spot gold was at US$1,214.95 an ounce by 1444 GMT, up from US$1,209.90 late in New York's on Wednesday. The precious metal has risen by about 3% so far this week and hit a record high of US$1,248.95 in mid-May.

The World Gold Council said global gold demand would likely rebound this year as investors buy the metal as a safe store of value away from volatile financial markets and as consumers get used to higher prices.

US gold futures for June delivery edged higher to US$1,214 an ounce.

"It looks quite solid, the rally in gold," Deutsche Bank's head of commodity research Michael Lewis told Reuters. "There are a number of factors we would highlight as risks which could be quite beneficial for gold."

Palladium jumped nearly 6% to a one-week high of US$462 an ounce, as analysts said recent losses in the metal had been overdone.

Palladium traded at US$460.50 against US$436.50. Platinum was at US$1,540.50 an ounce against US$1,518.50 and spot silver was bid at US$18.45 an ounce against US$18.01.

US copper futures rose, helped by gains in global equity markets.

Copper for July delivery advanced 5.25 cents, or 1.7%, at US$3.1330 per pound by 10.28am EDT on the New York Mercantile Exchange's COMEX division.

Businesswire.co.nz

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