Hopes of Egypt resolution ease market tensions

[February 02, 2011]  LONDON (AP) -- Stocks edged up Wednesday as investors grew hopeful that the political standoff in Egypt will be contained and resolved peacefully, while the euro eased back from three-month highs against the dollar after a ratings downgrade of Ireland.

Though Egyptian President Hosni Mubarak' vow late Tuesday to not stand for president again in September has not stopped the protests, there is a feeling in the markets that a peaceful transition may be in the works.

"With geopolitical concerns easing once again as Mubarak promises to leave power after the elections, global equity markets are looking as if the Egyptian crisis never happened and the upward trend has resumed," said Cameron Peacock, market analyst at IG Markets.

In Europe, Germany's DAX was up 0.1 percent at 7,189.17 while the CAC-40 in France was steady at 4,073. The FTSE 100 index of leading British shares outperformed its peers, rising 0.9 percent to 6,010 following strong results from Imperial Tobacco Group and Eurasian Natural Resources.

Wall Street was poised for a subdued opening later -- Dow futures were up 20 points at 11,993 while the broader S&P 500 futures rose 2.2 points to 1,304.90.

On Tuesday, the Dow Jones industrial average gained 1.1 percent and the broader S&P 500 rose 1.6 percent. Both closed at their highest levels since mid-2008 thanks to positive U.S. manufacturing data.

Though investors continue to keep one eye on developments in Egypt and the Middle East -- where much of the world's oil reserves are located -- they were largely encouraged by a bumper week for economic news ahead of the crucial U.S. payrolls figures on Friday.

Manufacturing figures Tuesday, particularly out of the U.S., were exceptionally strong, reinforcing hopes that the global economic recovery is gaining traction.

The dollar has been on the defensive despite the forecast-busting U.S. survey from the Institute for Supply Management as traders' appetite for risk rises. When investors feel comfortable about taking on more risky trades, stocks and the euro are often beneficiaries at the expense of assets like the dollar and gold.

The euro had risen to $1.3861, its highest level since Nov. 11, in early morning trading. But after Standard & Poor's downgraded Ireland's creditworthiness, the euro edged lower. By late morning London time, it was down 0.2 percent on the day at $1.3800.

The euro has been buoyant over the past two or three weeks, rising around 10 cents against the dollar, amid signs that European policymakers are finally getting a handle on the debt crisis that has already seen Greece and Ireland bailed out.

Although Portugal held a successful bond sale on Wednesday, Standard & Poor's downgrade of Ireland, citing fears about the banking sector despite last November's euro67.5 billion bailout, dented sentiment.

The agency said Wednesday that it was cutting its rating on Ireland by one notch to A minus from A and warned that another downgrade could be enacted by April.

Looking ahead, Thursday's monthly policy meeting at the European Central Bank will be the key event in Europe.

Comments from ECB chief Jean-Claude Trichet will be closely scrutinized to see if he ratchets up his warnings about inflation, which is now running at 2.4 percent in the eurozone -- above the ECB's target of "close to, but below" 2 percent.

While the ECB has been sounding a more hawkish tone of late, the U.S. Federal Reserve shows few signs of wanting to alter its super-easy monetary policy. The prospect of a widening in interest rate differentials between the euro and the dollar is one of the reasons why Europe's single currency has been so popular of late.

"In contrast to the Fed's accommodative policy, the market is preparing for an ECB rate hike this year and is expecting Trichet to reiterate his hawkish tone after tomorrow's policy meeting," said Jane Foley, senior currency strategist at Rabobank International.

Earlier in Asia, Japan's benchmark Nikkei 225 stock average gained 1.8 percent to close at 10,457.36, while Hong Kong's Hang Seng advanced 1.8 percent to 23,908.96 amid a last-minute rush for bargains ahead of the exchange's close at midday

Markets in China, Korea and Taiwan were closed Wednesday for the Chinese Lunar New Year. .

Benchmark crude for March delivery was up 38 cents at $91.15 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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