August 23, 2012 / 3:17 AM / 5 years ago

Fed easing hopes lift shares, weigh on dollar

LONDON (Reuters) - Signals from the U.S. Federal Reserve that another dose of stimulus measures could come “fairly soon” lifted global shares on Thursday and pushed the dollar to a two-month low, outweighing poor economic data from China and Europe.

European shares .FTEU3, which are up over 15 percent since June and have been driving the steady 11.5 percent rise in global stocks, were up 0.16 percent at 0925 GMT. Indexes in London .FTSE, Frankfurt .DAX and Paris .FCHI were all higher.

U.S. stock futures pointed to a higher open on Wall Street, with futures for the S&P 500, the Dow Jones and the Nasdaq 100 up 0.3 to 0.4 percent.

The euro, which has been boosted in recent weeks by hopes that a new bond buying-led plan being drawn up by the European Central Bank will overcome the currency bloc’s debt troubles, was at a seven-week high against the dollar at $1.25726.

Adding to the swirl of speculation about the details of the ECB’s plans, central bank sources told Reuters on Thursday that the bank is considering targeting bond yield levels with its purchases, but without making the targets public.

The dollar sank to a two-month low versus a broader basket of currencies .DXY. Behind the move was the Federal Reserve’s signal on Wednesday that more policy easing is likely to be on the way, a move that will pump more dollars into the financial system.

Minutes from the U.S. central bank’s meeting earlier in the month said: “Many (Fed) members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

“The market seems more interested in more prospects of stimulus from the Fed than worries over the euro crisis. In the short term, the market could get back up to the highs which we’ve seen in the last few weeks,” said Darren Easton, director of trading at London-based Logic Investments.

The Purchasing Managers’ Index survey from Markit suggested that the euro zone was destined to return to recession, as the poll notched up a seventh month of contraction.

“In terms of where they are, this is consistent with contraction in euro area GDP,” said Jeavon Lolay, Global Economist, Lloyds Banking Group. “You could argue it was slightly better than expected, but there isn’t much to add.”

Germany confirmed its economy grew at 0.3 percent in the second quarter. Chinese manufacturing PMI data also hit their lowest levels since November as new export orders slumped and the stock of unsold goods rose.

TIME PRESSURE

Meetings between Greece and key euro zone leaders are set to continue, with Greece’s prime minister heading to Berlin to see German Chancellor Angela Merkel on Friday and French President Francois Hollande on Saturday.

Eurogroup chief Jean-Claude Juncker kept alive Greek hopes of winning more time, saying that the country was staring at its “last chance”. But German Finance Minister Wolfgang Schaeuble warned in a radio interview that more time was “not a solution to the problems”.

European bond markets were choppy as they headed towards midday. German government bond futures were in demand, up 55 ticks, tracking the move in U.S. bonds.

The bloc’s troubled members were under fire, however, with Spanish and Italian borrowing costs both rising, with traders citing selling by domestic investors ahead of fresh auctions next week.

Fed stimulus hopes also helped oil markets shrug off the weak Chinese and European data, with Brent crude prices rising more than a dollar to breach $116 a barrel. Gold and silver hit their highest levels in more than three months.

“The Fed’s tone is totally different in the minutes from previous comments, and that helped gold,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

Reporting by Marc Jones; Editing by Will Waterman

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