Business Blog Posts: China data eases rate fears, world stocks up

China data eases rate fears, world stocks up

Addison Ray

By Jeremy Gaunt, European Investment Correspondent

LONDON | Tue Feb 15, 2011 4:18am EST

LONDON (Reuters) - Chinese inflation data helped ease investor concerns on Tuesday that the world's No 2 economy will have to tighten monetary policy more aggressively, but other data releases kept markets in a tight range.

The dollar was slightly weaker against a basket of major currencies .DXY, while the euro hovered near three-week lows as concern about euro zone debt rose up again.

World stocks as measured by MSCI .MIWD00000PUS were up 0.2 percent, not far from last week's 30-month highs. Japan's Nikkei .N225 logged a 10-month closing high and Europe's FTSEurofirst 300 was up a quarter of a percent.

A raft of data -- including euro zone fourth-quarter GDP, German business sentiment and UK inflation -- lay ahead during the session.

China's inflation was lower than expected at 4.9 percent in the year to January.

Although price pressures continued to build and will force the central bank to stick to its course of gradual monetary tightening, the report took the edge off concern about firmer action.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

Inflation pressures, particularly in emerging markets, have been part of the motivation this year for investors to move into developed stock markets.

A number of those countries are also having problems, however, particularly Britain. U.S. consumer price data, meanwhile, will be reported on Thursday.

In Europe, the French and German economies expanded by less than expected in the fourth quarter, data showed on Tuesday, suggesting the euro zone may not have accelerated out of a third-quarter slowdown.

EURO PERIPHERY

The euro steadied, supported by Asian demand, but was held back by skepticism that European leaders would come up with a quick and effective solution to tackle the euro zone's debt and banking problems.

It hovered near a three-week low hit a day earlier when reports about ailing lender WestLB triggered another outbreak of worries on euro zone debt and banking problems.

Peripheral euro zone yield spreads have been widening in the past week on uncertainty over a rescue package for the region, and there was some disappointment after a meeting of European finance ministers on Monday.

"Initial optimism at the beginning of the year over a comprehensive bailout package in the euro zone is now starting to fade away," said Lee Hardman, currency strategist at BTM UFJ.