World markets nervous ahead of key US jobs data

[January 07, 2011]  LONDON (AP) -- Market tensions ahead of Friday's key U.S. jobs data kept investors on edge and reluctant to buy into new positions.

In Europe, the FTSE 100 index of leading British shares was down 29.83 points, or 0.5 percent, at 5,989.68 while Germany's DAX fell 18.81 points, or 0.3 percent, to 6,962.58. The CAC-40 in France was 23.41 points, or 0.6 percent, lower at 3,881.01.

Wall Street was heading for a lower opening, too -- Dow futures were down 15 points at 11,631 while the broader Standard & Poor's 500 futures fell 2.7 to 1,267.50.

How the U.S. actually opens and how markets in general end the first trading week of the year will likely hinge on how the monthly nonfarm payrolls data look. The figures, which often set the tone in markets for a week or two, have taken on greater significance following a survey on Wednesday by the ADP agency showing U.S. employers added a massive 297,000 private sector jobs in December. That was way up on November's 92,000 and significantly ahead of market expectations for a 100,000 increase.

Analysts have been quick to raise their predictions for Friday's government report, despite fairly disappointing weekly jobless claims figures Thursday, and the expectation now is that around 180,000 jobs, both private and public, were added over the month, up from predictions of 140,000 before the ADP's survey. Some investment houses are predicting double that.

The scale of the upward revisions have been so great that there's now plenty of room for disappointment, especially as December figures are often distorted by seasonal factors to do with the Christmas shopping season and the weather, analysts said.

"We are mindful of the ADP possibly overestimating the true extent of improvement at this stage," said Derek Halpenny, an analyst at the Bank of Tokyo-Mitsubishi UFJ. "Some of the largest overestimates have come in December."

More jobs in the U.S. is good news for stocks because it signifies that the world's largest economy is growing faster than before.

However, faster jobs growth could also prompt the Federal Reserve to start withdrawing its monetary stimulus sooner than previously expected. As well as cutting its key interest rate to near zero percent, the Fed has authorized two massive money injections into the U.S. economy and is currently in the middle of a $600 billion effort.

Tentative concerns that the Fed may soon alter course seemed to weigh on stocks in the immediate aftermath of the upbeat ADP jobs survey but the optimists soon took charge -- after all, higher growth means bigger profits and earnings.

The dollar rallied on the back of a sharp spike in Treasury yields. That means that holding dollars is more attractive because the returns are potentially greater.

By late morning London time, the euro was down 0.2 percent at $1.2979 while the dollar was up 0.2 percent at 83.51 yen.

Jane Foley, senior currency strategist at Rabobank International, said a disappointing payrolls figure could drive the euro back up towards its 200-day average just below $1.31, though she added that a strong rally was unlikely given the ongoing government debt crisis.

Over recent days, Europe's debt crisis has taken a backseat to developments in the U.S. economy.

Governments in Germany, France and Portugal have managed to push through bond auctions fairly easily. However, underlying worries remain, not least in Portugal, which is widely considered to be the country most at risk in joining Greece and Ireland in seeking a financial bailout. The yields on its ten-year bonds have spiked up above 7 percent towards the levels that forced the previous bailouts.

Next week, Portugal is planning to sell more bond, as are Spain and Italy.

"As yields creep up, it will be interesting to see what the markets appetite is for fresh issues," said David Buik, markets analyst at BGC Partners.

Earlier in Asia, Japan's Nikkei 225 stock average edged up slightly -- about 0.1 percent -- to finish at a fresh eight month high of 10,541.04. Japanese stocks are benefiting from the recent fall in the value of the yen, which has eased the pressures on the country's exporters as they battle for business in the international marketplace.

Hong Kong's Hang Seng index lost 0.4 percent to 23,686.63, while South Korea's Kospi gained 0.4 percent to 2,086.20.

Benchmark oil for February delivery rose 35 cents to $88.73 a barrel electronic trading on the New York Mercantile Exchange. The contract tumbled $1.92, or 2 percent, to settle at $88.38 on Thursday. The sharp drop erased more than two weeks of gains on concerns that supplies will increase in coming weeks as demand for oil and gas remains soft.

[Associated Press; By PAN PYLAS]

AP Business Writer Yuri Kageyama in Tokyo contributed to this report.

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