Expectations of higher U.S. interest rates and renewed prospects for sustained economic growth focused investor attention on Tuesday, keeping at bay for now market concerns about the situation in Iraq. The dollar was buoyant against major currencies and demand for euro-denominated debt grew. Japanese shares put in a robust performance -- climbing to a level not seen since August 2001 -- but European equities fell from recent highs. Most financial markets were still digesting the impact of last week's surprisingly strong U.S. jobs data, which persuaded many that the world's biggest economy was no longer in danger of stalling. The sentiment was confirmed by a report on Monday showing the U.S. services sector hitting a record high in March. It put on the back burner concerns about geopolitical stability and security despite growing violence in Iraq, where a surge of Shi'ite unrest has raised questions about the need for more U.S. troops and the handover to civilian rule. "The attention has refocused on the economy," said Audrey Childe-Freeman, European economist at CIBC World Markets. "But that won't last forever." Markets were generally taking a breather after some hectic days trading on the back of the U.S. data and ahead of the Easter holiday. "It is very quiet," said one bond trader in London.
DOLLAR, STOCKS, BONDS
The dollar nonetheless jumped to a two-week high against the yen and held near a four-month peak on the euro, driven higher by the prospect of robust U.S. growth continuing. "The dollar's rise is an extension of buying back of the currency sparked by the strong economic data we've seen out of the U.S. on Friday and yesterday," said Junya Tanase, forex strategist at JP Morgan Chase in Tokyo. The U.S. currency shot up to around 107.25 yen , a two percent rise from late New York levels, before dropping back to around 106.13 yen. The euro tested its four-month low around $1.1980 before climbing back to around $1.2047, up a quarter of a percent, in early European trade. U.S. rate fears were weighing on European stocks. The FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was down 0.13 percent. The narrower DJ Euro Stoxx 50 index <.STOXX50E> shed 0.1 percent. "The consequences of stronger growth are tighter monetary policy...that's why we might see a pause today," said Gary Dugan, global strategist at JP Morgan Fleming.
"Still, the trend is positive and will be helped by the start of the U.S. results season." Euro zone government bond yields fell as potentially higher European interest rates attracted. The two-year Schatz yield was down 3.6 basis points at 2.32 percent. The 10-year Bund yield was down 2.2 basis points at 4.09 percent.///