Global stocks off highs, dollar edges lower as Fed rate rise looms

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[March 03, 2017]  By Vikram Subhedar

LONDON (Reuters) - The dollar retreated on Friday after two days of gains while world stocks pulled further back from all-time highs as investors unwound positions on growing expectations that U.S. interest rates will be hiked later this month.

Federal Reserve officials have lined up to sing about the need for higher rates soon, sending the implied probability of a move this month surging to 74 percent, from just 30 percent at the start of the week. [FEDWATCH]

Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak later on Friday and are expected to stick to the same tune.

U.S. stock futures were slightly lower, down 0.1 percent. Europe's benchmark STOXX 600 eased although it was on track to end the week up more than one percent.

French stocks outperformed on the day, with the bluechip CAC 40 <.FCHI> rising 0.7 percent, led by banking shares, as far-right candidate Marine Le Pen's chances in the country's presidential election dimmed.

The euro <EUR=> rose and the gap between French and German 10-year government bond yields fell to its lowest in a month.

Signs that centrist Emmanuel Macron is gaining ground in the race to be France's next president have helped calm markets fearful that anti-euro Le Pen could deliver an electoral shock like those in Britain and the United States last year.

"We saw a peak of panic in February when the focus was on Le Pen," said DZ Bank strategist Christian Lenk. "It's always been clear that the odds of Le Pen becoming the next president were quite low and now we see confirmation of that in the polls."

Meanwhile, economic data in Europe continued to point to a brightening recovery, with euro zone business activity growing at its quickest pace in nearly six years in February and job creation reaching its fastest in almost a decade.


The dollar index, which measures the greenback's strength against a basket of six major currencies, eased about 0.1 percent but was poised for its fourth straight weekly gain.

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A man walks past an electronic board showing stock prices outside a brokerage in Tokyo, Japan, January 4, 2017. REUTERS/Kim Kyung-Hoon

"The U.S. dollar has been snapped up across the board as a March Fed hike is heavily priced in," said Sean Callow, a senior currency strategist at Westpac.

"All it took was about a hundred comments from Fed officials, but markets have finally decided that "fairly soon" means less than two weeks and that perhaps three hikes this year means three hikes this year."

Expectations of a Fed rate hike soured the party on Wall Street, however, as financials led major U.S. indices lower. They remain close to record highs.

The total market value of global stock markets hit an all-time high of $56.7 trillion earlier this week, having added more than $4 trillion since Donald Trump's election as U.S. president last November.

More than half of those gains were down to the rally in U.S. stocks, into which investors have pumped money for four of the past five weeks, according to the latest data from Bank of America Merrill Lynch and fund tracker EPFR.

Investors flocked to buy shares of the hottest technology stock offering in three years, spurring a 44 percent pop on the first day of trading for Snap Inc, the owner of messaging app Snapchat. Its debut saw the loss-making company's market valuation soar to $28 billion.

In commodities, oil prices rose as the dollar edged away from a multi-week high, though gains were held in check by unchanged Russian output for February, a sign of its weak compliance on a global deal to cut supplies.

Benchmark Brent crude futures were up 0.3 percent at $55.26 a barrel after closing down 2.3 percent in the previous session. WTI futures gained 16 cents, or 0.3 percent, to $52.77.

(Additional reporting by Dhara Ranasighe and Wayne Cole in SYDNEY; Editing by Catherine Evans)

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