Shares capped by China data, Ukraine worries linger

LONDON: Concerns over Chinese growth and political tensions in Ukraine took the fizz out of an attempted rally in riskier assets on Thursday, as world shares steadied after their biggest falls for nearly two weeks.

Stock markets in Europe edged higher, with the pan-European FTSEurofirst 300 up 0.2 percent to recoup some of its 1.1 percent drop in the previous session.

The move echoed trading in Asia, where MSCI's broadest index of Asia-Pacific shares outside Japan managed to rise 0.5 percent, clawing back half the previous day's losses.

Soft Chinese data dented many markets, however, with Japan's Nikkei slipping 0.1 percent, erasing gains made after Japanese machinery orders beat expectations, and South Korean shares also erasing most of its gains.

China's industrial output growth came in below forecasts for the combined January/February period, with retail sales also weaker than expected, stoking worries that growth could slow as Beijing pushes for economic reforms.

"The China economy is slowing quite sharply, in our view… (although) the lack of inflation and slowing growth does open the door for policy easing," Gerard Lane, equity strategist at Shore Capital, said in a note.

The MSCI All-Country World index edged up 0.1 percent, not far from an eight-day low hit on Wednesday.

A major victim of concerns over China, copper dropped 0.9 percent to $6,448 a tonne, a day after it hit a four-year low at $6376.25.

After a tumble in copper of around 8 percent so far this month, investors are worried about a possible unravelling of Chinese loan deals using the metal as collateral.

EURO: A NEW SAFE HAVEN?

Traditional safe-haven assets remained firm even as stocks steadied, as the diplomatic stalemate between Russia and the West over Ukraine continued.

The European Union agreed on a framework on Wednesday for its first sanctions on Russia since the Cold War.

Gold hit a six-month high of $1,374.85, while U.S. Treasuries have erased all the losses made following last week's strong payrolls data. The benchmark 10-year yield was 2.72 percent on Thursday versus its six-week high of 2.82 percent hit last Friday.

Geopolitical tension also supported oil. The European benchmark Brent held relatively firm at $107.88 as it drew support from the unfolding crisis over Ukraine.

U.S. crude futures steadied, although they remained near one-month lows hit on Wednesday after Washington announced a surprise plan for a test release of strategic oil reserves.

In the currency market, the Swiss franc hit a two-and-a-half year high of 0.8697 francs to the dollar, while the Japanese yen, which is under pressure from the Bank of Japan's loose monetary policy, also ticked up slightly.

The euro hit a new 2 1/2-year high of $1.3954, a possible sign that the currency is regaining safe-haven status as it recovers from the sovereign debt crisis.

Irish government bond yields hit new record lows before Dublin's first regular debt auction since its 2010 bailout, seen as a post-crisis watershed for the country.

Investors expected a solid auction result, which some said could be a catalyst for another leg in the Irish debt rally which has taken 10-year yields to just below 3 percent from a peak of over 15 percent in 2011.

"This return to domestic bond auctions is the final stage of Ireland regaining full access to capital markets," said Sandra Holdsworth, an investment manager at Kames Capital.

"We expect Thursday's auction to pass successfully… However, one note of caution: at current levels of yield there is little margin to protect investors should the economic outlook worsen or fiscal discipline be lost."

Source – Reuters