LONDON, April 3 - Financial markets steadied on Thursday as investors looked to the next phase of the war in Iraq after Wednesday's stock market rally and oil price fall on the lightning U.S. advance on Baghdad. European stocks were a shade higher, after solid overnight gains on Wall Street, the dollar ticked down against the euro but held most of Wednesday's gains and safe haven government bond prices rose. "We are higher today as people realise that there could be higher casualties now at this decisive stage of combat," a London debt trader said. However, gold was down despite its safe haven status and oil prices fell strongly once again. Iraq moved reinforcements to defend Baghdad as U.S. troops stood poised close to the city after Wednesday's northward thrust. U.S. officials said Iraq had shot down a Black Hawk helicopter gunship and that a U.S. F/A-18 Hornet fighter-bomber was also down.
On European stock markets, the FTSE Eurotop 300 index <.FTEU3> was up 0.94 percent and the narrower DJ Euro STOXX 50 index <.STOXX50E> was up 1.47 percent. The hesitant start followed major gains on Wall Street. The Dow Jones industrial average <.DJI> ended up 2.67 percent and the broader Standard & Poor's 500 Index <.SPX> gained 2.61 percent. The technology-laced Nasdaq Composite Index <.IXIC> closed up 3.59 percent. The S&P 500 has erased all of its losses for the year. U.S. stock index futures were down slightly, indicating an uncertain start when U.S. share markets open. The dollar, which soared one and a third percent against the euro on Wednesday and almost two percent against the Swiss franc, fell slightly as initial optimism over the U.S. advance waned. The euro was at $1.0782, up 0.2 percent on the day. Against the yen , the dollar was down a similar amount. "The dollar is unlikely to break above Wednesday's high unless there is a new development in Iraq," said a dealer at a Japanese bank Gold, seen as a safe place for investors to put their money in troubled times, eased in early European trade. Spot gold was at $327.50/328.25 an ounce, compared with $329.70/330.20 at Wednesday's New York close.
"Until you have some solid news -- Saddam has been captured or something -- we're just going to hang here in this range," a bullion trader said. Oil prices fell heavily on the U.S. advance and after Energy Department data showed U.S. crude stocks had recovered strongly from record lows though still below year-ago levels. U.S. light crude for May was down 76 cents a barrel at $27.80 and Brent crude was down 41 cents at $24.80 a barrel. Euro zone government bond yields, which move inversely to the price, fell and futures prices rose. The June German Bund future was four ticks higher. The two-year German Schatz note was yielding 2.46 percent, down 3.7 basis points. The benchmark German 10-year Bund was yielding 4.12 percent, down 1.8 basis points. A note of caution about how long the war could last pushed U.S. Treasury yields down a shade. Treasury yields shot up on Wednesday as U.S. forces advanced on Baghdad. However, traders in Asia took the view bonds were oversold and that the war could drag on once U.S. troops reached the capital. Benchmark 10-tear noted were yielding 3.91 percent, down 2.2 basis points. Tokyo stocks took a tumble, led by falls in big banks, concerns the deadly SARS virus will hit Asian demand and after an outburst by Finance Minister Masajuro Shiokawa raised speculation of a rift in the Japanese cabinet.
Shiokawa accused Economics Minister Heizo Takenaka of making up remarks by premier Junichiro Koizumi on tax reform. The Nikkei index <.N225> closed down 0.65 percent and the broader TOPIX index <.TOPX> ended down 0.49 percent. "This rift is a big negative factor and a lot of people sold on this. It is one of the main reasons we weren't able to stay higher in spite of such nice Wall Street gains," said Tatsuyuki Kawasaki, director of equities trading at Kaneyama Securities.//