1:12 AM
Euro steadier after bounce, global stocks ease
Addison Ray
By Ian Chua
SYDNEY | Fri Jan 14, 2011 2:54am EST
SYDNEY (Reuters) - The euro paused on Friday but was still on track to post its best weekly performance against the dollar in 20 months, while Asian equity markets struggled to extend recent gains, with Japan's Nikkei retreating from an 8-month peak.
European shares were expected to open lower with financial spreadbetters calling for declines of up to 0.5 percent.
The common currency fell prey to profit taking, having raced to a high of $1.3383 on Thursday after the European Central Bank caught markets off guard by hinting it could lift interest rates to contain inflation, even while the bloc was tackling a debt crisis. It was last at $1.3338, slightly below late U.S. levels.
The hawkish comments followed interest rate hikes in Thailand and South Korea this week as policymakers grow increasingly worried about inflationary pressures.
"The signals from the ECB also reinforce our view that it will hike before the Fed does," said Ken Wattret, BNP Paribas chief eurogroup market economist.
"As relatively little in the way of rate hikes has been priced in for this year, the market is likely to continue to shift in the direction of early tightening, absent a resurgence in market volatility."
The euro's rise marked an impressive turnaround from a four-month low around $1.2871 on Monday and set the scene for a retest of the December high of $1.3500. It is up about 3.5 percent this week, the biggest weekly rise since May 2009.
Well-received bond sales from highly indebted euro zone members Portugal and Spain this week and speculation that European policymakers will boost their war chest against attacks on euro zone sovereign debt all contributed to the currency's better tone.
Gains in the euro saw the dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, fall below 80.000 from this week's high of 81.313.
Tsutomu Soma, manager of foreign securities at Okasan Securities, said the euro's rise was nothing more than short-covering from overselling late last year on excessively bearish view on the euro zone.
"Given that the fiscal problems in the region are unresolved, investors will be cautious about chasing the currency higher."
NIKKEI FALLS
Equity investors booked profits on recent gains ahead of the weekend, with stocks of resource companies like BHP Billiton (BHP.AX) further weighed by a pullback in oil and metals prices.
Japan's Nikkei average .N225 shed 0.9 percent, a day after reaching an eight-month high, while stocks elsewhere in Asia .MIAPJ0000PUS were flat.
Australia's S&P/ASX 200 index .AXJO nudged up 0.1 percent and Hong Kong's Hang Seng index .HSI put on 0.2 percent.
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