LONDON, Dec 19 - The dollar inched up against the euro but remained within sight of record lows on Friday as worries about the U.S.'s current account deficit overrode fresh signs that the world's largest economy is growing robustly. European stocks eyed 2003 highs but failed to catch a tailwind from Thursday's stronger-than-expected U.S. job and manufacturing data which had earlier boosted Asian equities. U.S. stock index futures indicated that Wall Street could see some consolidation at the start of trading after closing at fresh 19-month highs on Thursday. European government bond yields were flat while oil prices slipped as investors took profits from a month-long rally. With the year end in sight, investors showed little sign of abandoning their bearish view of the dollar. The greenback has lost around 18 percent of its value against the euro this year as investors worry that a recovering global economy will make it harder for the U.S. to attract enough investment to fund its gaping current account deficit.
A surprise drop in first-time claims for U.S. jobless benefits and a surge in regional manufacturing activity which helped Wall Street to a 19-month peak on Thursday failed to lift the gloom. "Inflows into the U.S. on the capital side have not kept up with recovering growth/equity stories and there is clearly a confidence problem with the U.S.," said Jim McCormick, head of foreign exchange research at Lehman Brothers. "U.S. equity markets are outperforming others and the dollar is still not going up. Even growth cannot turn the flow around." The euro slipped back slightly to $1.2410 in European trade, short of Thursday's lifetime peaks near $1.2440. Traders said the dollar's bearish trend would continue, and despite limited activity in the market, many said a rise in the euro past $1.25 before the end of the year is a real possibility.
STOCKS, BONDS
European stocks hovered near their year high reached on Monday. But strong gains overnight on Wall Street which drove Asian stocks higher failed to provide any momentum. Shares in several Italian banks skidded on fears of their possible exposure to Italian food group Parmalat , which had its shares suspended. "I'm surprised the market isn't higher today after the Dow's break through 10,200 yesterday on strong U.S. economic data and good profits from American banks," said Florian van Laar at Eureffect Asset Management. "Confidence in the market and economics is better every day." By 1325 GMT, the FTSE Eurotop 300 index was flat at 945 points, though still only four points or so from the 2003 high. The narrower DJ Euro Stoxx 50 index was up 0.1 percent at 2,718 points. Asian stocks had ended higher, buoyed by overnight gains on Wall Street. Japan's Nikkei 225 index closed 1.8 percent higher at 10,284.54.
A broad index of Asian shares outside Japan was up 0.63 percent. The Dow Jones industrial average closed up one percent at 10,248.08 points on Thursday and the tech-laden Nasdaq Composite ended up 1.8 percent at 1,956.18 points. Euro zone government bond yields were flat on Friday in thin trading with support from the euro and end-of-year balance sheet tweaking, mainly by Asian investors. "It is clear from the recent appreciation we have seen in the euro that the market is becoming less confident about the idea of the ECB raising rates and that is what has been supporting bonds," said Nathalie Fillet, senior interest rate strategist at BNP Paribas. The interest rate sensitive two year Schatz yield was up 0.8 basis points yielding 2.51 percent. The benchmark 10-year Bund yield was 0.4 basis points down at 4.25 percent. On Thursday, it fell to 4.21 percent, its lowest level in almost two months. Gold was flat at $409.90/$410.65 against its close in New York at $409.90/$410.40. Crude oil futures reversed early gains as investors booked profits. February Brent Crude was down 13 cents at $30.65 despite thinning U.S. oil stocks and forecasts of cold weather.//