Stocks steadier, yen softens on intervention talk

[March 17, 2011]  LONDON (AP) -- A resilient performance by Japanese shares helped shore up stocks in Europe Thursday, while the yen pulled back from a record high against the dollar amid expectations that finance chiefs from the world's industrialized nations will discuss how to ease the currency's rise.

Once again, the focus of attention in the markets centered on Japan, which is trying to deal with the effects of last week's catastrophic earthquake and tsunami, notably a potential meltdown at the Fukushima nuclear plant.

The near-term fortunes of stock markets all around the world will likely hinge on how successful the Japanese authorities are in bringing the crisis at Fukushima under control. If a nuclear catastrophe is avoided, then investors will be able to focus solely on the economic cost of last week's natural disasters.

"The situation is still very much hanging in the balance and each update will remain top of the list in terms of priority for traders in the hours and days that lie ahead," said Peter Stanhope, a trader at IG Markets.

So far, there is some relief that the worst scenarios envisioned by some have not materialized. Although Japan's benchmark Nikkei 225 fell 1.4 percent to close at 8,962.67, that was a recovery from a 3.6 percent drop earlier and is much smaller than the declines posted on Monday and Tuesday, before a rally Wednesday.

The Nikkei's rally from its daily lows helped European markets recover their poise Thursday.

The FTSE 100 index of leading British shares was up 0.7 percent at 5,637 while Germany's DAX rose 0.9 percent to 6,570. The CAC-40 in Paris was 0.9 percent higher at 3,730.

Wall Street was also set to recover some of Wednesday's losses -- Dow futures were up 89 points at 11,658 while the broader Standard & Poor's 500 futures rose 12 points to 1,266.

While stocks have been relatively stable over the last day, the yen has been increasingly volatile.

In frantic trading earlier, the dollar plunged to an all-time low of 76.53 yen before rallying back up to 78.71 yen in mid-morning London trading. Even that level is way down on the previous all-time low of 79.75 yen recorded back in April 1995.

Counter-intuitively, the yen has been a huge beneficiary of the carnage wrought by the earthquake and tsunami as it gains from its widely perceived status as a safe haven in times of market turmoil and as speculators buy up it up on expectations of further rises. The yen has also been buoyed by evidence that Japanese investors are repatriating cash to pay for reconstruction -- in the case of insurance companies, to pay claims for the massive loss of property and life.

The yen fell back, however, after confirmation that the Group of Seven finance ministers and central bankers will be holding an emergency conference call later Thursday to discuss ways to calm fidgety markets.

"It would be nothing short of amazing if they fail to at least make some veiled threat of intervention," said Alan Ruskin, head currency strategist at Deutsche Bank. "An absolute minimum expectation is that they note that excessive yen volatility is undesirable."

Ruskin said they may go further and signal that if the Bank of Japan intervenes in the markets by buying up dollars, it will be coordinated with other major central banks, such as the U.S. Federal Reserve and the European Central Bank.

"It has surprised me that the Bank of Japan has remained silent even as we tested key levels Wednesday, and it is a not clear whether the earthquake may have rendered the (Japanese monetary authorities) functionally challenged, or they were simply awaiting a G-7 statement to bolster their stance," Ruskin said.

The last thing the Japanese economy needs is a strong yen, which hurts its exporters, potentially deepening the already severe hit to the world's No. 3 economy.

The repercussions of the yen's volatility is being felt throughout currency markets, and the euro was trading 0.8 percent higher at $1.4030.

Elsewhere in Asia, most markets traded lower in line with the Nikkei. Hong Kong's Hang Seng index fell 2 percent to 22,256.59 while South Korea's Kospi managed a marginal gain to 1,959.03. Mainland China's Shanghai Composite Index fell 1.1 percent to 2,897.30 while the Shenzhen Composite Index lost 1.8 percent to 1,284.96.

In oil markets, traders are keeping a close watch on developments in Libya as the regime of longtime leader Moammar Gadhafi looks like it's about to defeat the rebels and the international community continues to debate the merits of backing a no-fly zone over the country.

Benchmark crude for April delivery was up $1.27 to $99.25 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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