World stocks up as G-20 vows to avoid currency war

[October 25, 2010]  LONDON (AP) -- World stocks rose and the dollar slumped Monday after global finance chiefs vowed to avoid a currency war that could derail the global recovery. With no concrete guidelines to go by, however, investors are wary that this may only prove a temporary truce.

Finance ministers from the Group of 20 developed and emerging countries promised to avoid competitive devaluations -- weakening a national currency to help exports and sustain economic recovery -- but offered no binding targets for evening out trade imbalances.

Analysts said firmer guidelines may yet be delivered at next month's meeting of world leaders in South Korea. For the time being, though, the promises were enough to help investors look past immediate threats of a currency war and focus on the main economic event on the horizon -- the Federal Reserve's expected expansion of the U.S. money supply, an attempt to boost growth that markets fear could also weaken the dollar.

As a result, stocks rose and the dollar fell, hitting a new 15-year low against the yen.

Britain's FTSE 100 index was up 0.7 percent at 5,783.25 while Germany's DAX was 0.7 percent higher at 6,653.00. France's CAC-40 gained 0.5 percent to 3,888.71.

Asian indexes closed higher and Wall Street was expected to rise on the open -- Dow futures were up 0.6 percent at 11,152 while Standard & Poor's 500 futures were 0.7 percent higher at 1,188.50.

Nations in Asia and other regions have been trying to stem strength in their currencies amid sustained weakness in the U.S. dollar out of fear their exports will become less competitive. At the same time, China's currency, the yuan, has been effectively pegged to the dollar, provoking criticism it is being kept artificially low and giving the country's exporters an unfair advantage.

The communique by the finance ministers at the meeting in South Korea failed to agree on a U.S. request to keep current account imbalances at around 4 percent. That would require heavy exporters like China and Germany to boost domestic demand, in turn helping other countries like the U.S. export more.

Some sort of guideline may yet be agreed at the meeting of heads of state next month, but the feeling is that the ministers have only agreed to the bare minimum to prevent a deterioration in investor sentiment in the short term.

"The communique is wide open to varying interpretations," said Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole. "So whilst a 'currency war' was always unlikely, 'skirmishes' will continue."

The dollar hit a new 15-year low against the Japanese yen -- trading at 80.52 yen from 81.50 yen on Friday -- and slumped against the euro, which rose to $1.4062 from $1.3931. The focus is now on the Fed's expected monetary stimulus, which will effectively create more dollars in the financial system, thereby reducing the value of the U.S. currency.

"The agreement the finance ministers reached is being interpreted by the market as a go-ahead to the U.S. to further devalue the dollar, that the developing countries won't partake in a competitive currency devaluation," said Victor Shum, an energy analyst with Pervin & Gertz in Singapore. "It's a signal to the market that some more weakening of the U.S. dollar will probably be tolerated by everybody else."

The surge in the yen hurt Japan's benchmark Nikkei 225 stock index, which bucked gains across Asia by closing down 0.3 percent at 9,401.16.

Australia's S&P/ASX 200 added 1.3 percent to 4,710.00 amid news the Singapore Exchange is making a $8.3 billion takeover offer for ASX, the operator of the Australian stock market.

The combined exchange company would be the world's fifth-largest by market value and rank as the second-largest stock market in Asia by number of listed companies, the two exchanges said in a joint statement. ASX shares surged more than 20 percent.

South Korea's Kospi added 1 percent to 1,915.71 and Hong Kong's Hang Seng climbed 0.9 percent to 23,732.05.

The Shanghai Composite Index vaulted 2.6 percent to 3,051.42. Markets in Singapore, Taiwan and India also rose.

Benchmark crude for December delivery rose 92 cents, or 1.1 percent, to $83.88 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By CARLO PIOVANO]

Associated Press researcher Ji Chen in Shanghai and AP writers Alex Kennedy in Singapore and Shino Yuasa in Tokyo contributed to this story.

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