While you were sleeping: Geithner's forex comments, US data

Thursday 26th March 2009

US Treasury Secretary Timothy Geithner sent currency markets on a wild ride by appearing to endorse Chinese calls for a new reserve currency before reiterating that the US dollar would remain the benchmark.

The greenback initially tumbled 1.2% against the euro after remarks Geithner made at a Council on Foreign Relations meeting in New York. He told business leaders and policymakers that the US was "actually quite open" to Chinese calls for greater use of a basket of currencies - the dollar, euro, yen and pound under the auspices of the IMF.

Geithner clarified his comments when prompted by the meeting's moderator, saying the dollar "remains the world's dominant reserve currency and I think that's likely to continue for a long period of time."

The US currency fell as low as $1.3651 per euro and recently traded at $1.3584. The dollar weakened to 97.29 yen from 97.86. The euro strengthened to 132.49 yen from 131.81.

Stocks on Wall Street also swung between gains and losses, staging a late rally, led by banks. The market had been down earlier on concern about a tepid response to an auction of Treasury bonds and after a report that IBM planned to shed workers drove tech stocks lower.

The Dow Jones Industrial Average gained 1.2% to 7749.81 and the Standard & Poor's 500 Index rose about 1% to 813.88. The Nasdaq Composite rose 0.8% to 1528.95.

JPMorgan Chase climbed 6% to US$27.78 and Bank of America rose 4.5% to US$7.49. Alcoa rose 4.9% to US$7.68.

IBM fell 0.9% to US$97.49, Microsoft declined 0.3% to US$17.88 and Intel slid 0.2% to US$14.98.

US orders for durable goods unexpectedly rose last month stoking optimism the world's biggest economy will pull itself out of recession.

Orders rose 3.4% last month, in the first gain for seven months, according to Commerce Department figures.

Orders excluding transport equipment rose 3.9% in the biggest monthly rise since August 2005. Demand for non-defense goods, excluding aircraft, surged 6.6%, rebounding from an 11% tumble in January.

A separate Commerce Department report indicated new-home sales climbed 4.7% in February, reviving from a record low in the previous month.

Treasury bonds fell, extending their slide for a fifth day, after an auction of US$34 billion of five-year notes drew a higher-than-expected yield of 1.849%, suggesting sales are outpacing demand as the government raises funds for its bailouts and stimulus packages.

The lackluster auction weighed on Treasuries even as the Federal Reserve entered the market to buy US$7.5 billion of notes, the start of its plan to acquire up to US$300 billion of the debt.

The yield on 10-year Treasuries gained 6 basis points to 2.77% while the 30-year bond yield rose 8 basis points to 3.71%.

Copper prices fell for a second day after a report showed a drop in German business confidence. The Ifo institute survey showed its business climate index fell to 82.1 this month, a 26-year low, from 82.6 in February.

Copper futures for May delivery fell 0.2% to US$1.803 a pound on the New York Mercantile Exchange.

Crude oil fell after a US Energy Department report showed US stockpiles climbed to a 16-year high last week, a sign that demand for fuel is waning as the economy remains mired in recession.

Gold futures for June delivery rose 1.3% to US$938 an ounce in New York, bringing its gain this year to more than 6%.

UK retail sales declined this month, according to a survey of store owners by the Confederation of British Industry. The survey showed a net 44% of retailers had lower sales this month, a deterioration from the net 25% who reported a decline in February.

The Netherlands plans to increase spending by more than 17 billion euros over the next three years to try to lift the economy out of recession. It also raised the state-pension age to 67 years.

The Dow Jones Stoxx 600 Index rose 0.3% to 178.82 as Commerzbank jumped 16% and Volkswagen climbed 11%.

In London, the FTSE 100 fell 0.3% to 3900.25 led by a 14% drop in Smiths Group after the company that makes threat and contraband detection devices and medical equipment said profit slumped. Aviva fell 12% and Lloyds Banking Group climbed 6.6%.

Germany's DAX 30 rose 0.9% to 4223.29 and France's CAC 40 advanced 0.7% to 2893.45.

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