Mubarak defiance weighs on stocks, boosts dollar

[February 11, 2011]  LONDON (AP) -- The failure of Egypt's President Hosni Mubarak to stand down is weighing on market sentiment Friday, sending stocks down around the world and the dollar higher through its perceived status as a safe haven.

On Thursday, stocks had clambered off lows on mounting speculation that Mubarak was ready to meet protesters' demands and quit. His perceived defiance has triggered concerns in the markets that the Egyptian crisis is a long way from being resolved and is likely to be met with further anger on the streets of Cairo following Friday prayers.

"Renewed tensions in Egypt following Mubarak's speech will be closely watched and a prolonged stand-off increases the risks for global markets," said Adarsh Sinha, an analyst at Bank of America Merrill Lynch.

In Europe, the FTSE 100 index of leading British shares was down 0.6 percent at 5,986 while Germany's DAX fell 0.6 percent to 7,296. The CAC-40 in Paris was 1.2 percent lower at 4,048.

Wall Street was also poised for a further retreat at the open, a day after the Dow Jones ended a weeklong rally -- Dow futures were down 0.4 percent at 12,150 while the broader Standard & Poor's 500 futures fell 0.6 percent to 1,311.

The renewed tensions in Egypt have also lifted oil prices, with benchmark crude for March delivery up 55 cents at $87.28 a barrel in electronic trading on the New York Mercantile Exchange.

Though Egypt is not a big oil producer, traders are worrying that the unrest might spread to other countries and affect the Suez Canal -- a key route for oil tankers and cargo ships as they steer from the Persian Gulf to the major oil-consuming nations in Europe.

Mubarak's failure to resign has also had an impact in the currency markets, with the dollar enjoying broad-based support through its safe haven status. When investors' appetite for risk falter, assets like the dollar, the Swiss Franc and gold find support.

By mid morning London time, the euro was 0.7 percent lower at $1.3517 while the British pound was 0.6 percent down at $1.5996. The U.S. currency was also 0.2 percent firmer at 83.54 yen.

The dollar's strength against the euro cannot just be explained by the developments in Egypt.

Fears that Europe's debt crisis may be about to return have started to haunt the euro following a few weeks when it fell down the list of investor concerns amid signs that EU leaders were preparing a comprehensive solution.

However, last week's limited progress in a summit of EU leaders in Brussels has reminded investors that the crisis is a long way from being settled and that Portugal could still end up joining Greece and Ireland in getting a bailout.

"It would be naive to assume that the crisis can no longer pack a punch," said Jane Foley, senior currency strategist at Rabobank International. "Portugal faces a huge round of debt redemptions in April and with current yields on Portuguese debt holding just below post-euro creation highs it is not unreasonable to fear that Portugal may need some sort of financial support this spring."

Earlier in Asia, South Korea led the retreat, tumbling 1.6 percent to 1,977.19 after the country's central bank suggested it will raise rates in coming months. The Bank of Korea unexpectedly raised the rate in January for the second time in three months.

Central banks in Asia have been raising borrowing costs in a bid to stem inflation amid robust economic growth. China's central bank raised interest rates Tuesday for the second time since late December to rein in rising prices. India, Indonesia and Thailand have also hiked rates recently.

Australia's S&P/ASX 200 let go of the previous day's gains, dropping 0.7 percent to 4,880.90, while Hong Kong's Hang Seng rose 0.5 percent to 22,828.92 .

Mainland Chinese shares ended the week on an upbeat note in active trading as investors settled down after the interest rate hike announced Tuesday. The benchmark Shanghai Composite Index gained 0.3 percent to 2,827.33, while the Shenzhen Composite Index of China's smaller, second exchange rose 1.1 percent to 1,234.18.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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