10 June 2004, 09:04  Fed comments lift dlr vs euro, hurt Asian stocks

The dollar hit a two-week high against the euro and most Asian stock markets eased on Thursday as Federal Reserve officials appeared to hint that U.S. interest rates could rise more aggressively than previously thought. Tokyo shares edged higher as investors awaited machinery orders data due at the close of trade for confirmation that the Japanese economy is gathering steam. That prospect helped the yen trim sharp overnight losses against the dollar and continued to weigh on Japanese government bonds (JGBs). The Nikkei stock average <.N225> rose half a percent to 11,505.31 in morning trade. Consumer finance company Promise Co <8574.T> jumped 3.7 percent on news it was discussing an equity alliance with Japan's second-biggest financial group, Sumitomo Mitsui Financial Group Inc (SMFG) <8316.T>. SMFG rose a quarter of a percent.
An MSCI index of shares elsewhere in the Asia Pacific <.MSCIAPJ> was almost one percent lower by around 0220 GMT. U.S. oil eased four cents to $37.50 a barrel after closing higher in U.S. trade despite news of a rise in commercial fuel inventories, while gold hit a three-week low below $383 an ounce as the dollar gained. Speculation over a faster pace of U.S. rate rises intensified after New York Fed President Timothy Geithner said on Wednesday the central bank was determined to defend price stability and support the economic recovery. Kansas City Fed President Thomas Hoeing said the Fed would act decisively to keep prices in check.
GREENSPAN EFFECT
Those comments came after Fed Chairman Alan Greenspan said on Tuesday the central bank would do "what is required" to keep inflation in check. "This Greenspan-led effect shook interest rate markets again, and the dollar also shot up accordingly," said Masamichi Koike, head of forex spot trading at Sumitomo Mitsui Banking Co. The euro fell almost two percent in New York trade and to as low as $1.2023 in Asia, its weakest level in two weeks. It later clawed back to $1.2056. The euro was also dented by news of a bomb in Cologne, Germany, on Wednesday, dealers said. The dollar rose nearly two yen overnight, but eased a little in Asia amid growing confidence about the state of the Japanese economy. It was buying 110.00 yen versus 110.25 in late U.S. trade. Investors were awaiting Japanese machinery orders data for April, due out at 0500 GMT, for a fresh snapshot of the state of the economy.
A poll showed that machinery orders, regarded as a leading gauge of capital spending, were expected to increase by 1.9 percent from the previous month, helped by demand for digital electronics products from export markets such as China. Japanese stocks turned higher by mid-day as several technology stocks rebounded from recent losses, but gains were limited as investors held back ahead of the data. "Nobody wants to take a risk at this moment when there are not many trading factors around," said Yoshihiko Kosuga, an equities deputy general manager at Mizuho Investors Securities. Benchmark indices elsewhere in the region were mostly lower following falls in U.S. stocks, by 0.5 percent in Hong Kong <.HSI>, 0.9 percent in Seoul <.KS11> and 1.7 percent in Taipei <.TWII>. Australia <.AXJO> was flat. "As oil prices have stabilised below the worrisome $40 a barrel level, concerns over a U.S. interest rate rise have re-emerged and foreign selling is also a worry," said Seo Jeong-kwang, an analyst at LG Investment & Securities in South Korea. In Hong Kong, shares in China's Mengniu Dairy Co Ltd <2319.HK> debuted 12 percent above their initial public offering price.///

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