european shares, yields flat as oil dips, us rate
European shares, yields flat as oil dips, US rate rise looms September 7, 2004 6:28am ET (Reuters)
By William Kemble-Diaz
LONDON, Sept 7 (Reuters) - European shares and government bond yields were flat on Tuesday despite another dip in the price of oil, whose recent declines have sustained investor optimism about medium term prospects for the world economy.
There was little appetite for extending a recent trend that has sparked a revival in share-buying, supported the dollar and helped put a stop to three months of government bond gains.
Investors waited for the reopening of Wall Street for new direction after the long U.S. holiday weekend.
Sentiment remained rattled by last week's Intel sales warning and the prospect of more U.S. rate rises ahead of a near-certain Fed hike on Sept. 21.
"The market has discounted a U.S. rate hike (for September). Payrolls were good but they weren't good enough to get really hawkish on the Fed so it's not easy to find direction here," said Peter Fontaine, currency strategist at KBC in Brussels.
By 0930 GMT, the FTSE Eurotop 300 index of leading European shares pulled back from a two-month closing high and edged down 0.1 percent to 991 points after Japan's Nikkei average added 0.5 percent to post its strongest finish in 5 weeks.
Benchmark 10-year euro zone and U.S. government bond yields were broadly flat at around 4.13 percent and 4.27 percent respectively.
The dollar was a touch weaker at just over $1.21 to the euro but was still firmly ensconced at the stronger end of its recent trading range.
Friday's robust U.S. jobs report and expectations of another soothing economic update from Federal Reserve Chairman Alan Greenspan, when he testifies before the House Budget Committee on Wednesday, have reassured investors that the U.S. growth story remains intact.
But it has also reminded investors of the Fed's interest rate-tightening agenda and put a floor under government bond yields after these fell to five-month lows last week, both in the United States and the euro zone.
Shares in Sanofi-Aventis were among the biggest fallers in Europe, losing 2.1 percent, after the Kuwait Petroleum Corp sold a 2.8 percent stake in the newly-merged drugs company.
TUI stock also sank after the German holiday group cancelled plans for a spin-off IPO and Swiss-based employment services giant Adecco gave up its initial gains after reporting better-than-expected second-quarter results.
Shares in German Internet provider T-Online jumped by more than four percent for the second day running on speculation parent company Deutsche Telekom might buy out minority shareholders.
U.S. light crude oil futures tested support at $43 per barrel on NYMEX in out-of-hours electronic trade, with front-month Brent futures down 30 cents at $40.34 as the head of OPEC cartel said markets were well-supplied and traders continued to take profits from this year's 40 percent rally.
But a combination of rising global demand and tight supplies also highlights the strong fundamental support that is still underpinning oil prices.
For some sell-side strategists, such as those at Goldman Sachs, oil prices are expected to remain high through 2005, boosting inflationary expectations over the next few quarters as investors get over their initial slowdown fears.
In an asset allocation note to clients they argue in favour of a tactical switch into commodities, which they say should benefit from continued oil price volatility and which has a stronger negative correlation with equities than bonds.
Wall Street was shut for Labor Day on Monday and U.S. stocks ended lower on Friday, despite the encouraging jobs news, after Intel's revenue warning sent tech stocks tumbling and as Hurricane Frances sent Floridians scurrying.
Japanese stocks rose for a second day running on renewed economic optimism. But it was firms tied to the domestic economy and banks rather than export-orientated tech and manufacturing counters that led the way up as the Nikkei average added 0.49 percent to 11,298 points.
Other Asian indexes like the Hang Seng , Kospi and Straits Times traded mixed.
Gold prices rose to around $402 an ounce after Friday's non-farm payrolls data put paid to a late summer assault on the $410 mark by reviving the fortunes of its safe-haven investment rival, the dollar.
