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 Oil reversed early falls and the euro rose against the dollar.
Worries emanating from the high-risk U.S. corporate debt market
about the prospect of a Federal Reserve rate hike on Wednesday
weighed on low-rated euro zone government bonds.
Wall Street looked set to follow Europe and Asia higher, according
to stock index futures.
European shares opened higher, after hitting 2-1/2-month lows on
Monday when oil prices fell to their weakest since 2008, and were
last up almost 2 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan was up
0.3 percent. Japan's Nikkei stock index ended down 1.7 percent
at a 7-1/2-week low and Chinese stocks lost 0.3-0.5 percent.
Brent crude rose, as prices close to 11-year lows brought in
bargain-hunters. The global benchmark for oil rose 58 cents to
$38.50 a barrel. It fell on Monday as low as $36.33, its weakest
since December 2008. A fall below $36.20 would take it back to
levels last seen in mid-2004.
Prices have been falling for weeks due to a global glut of oil and,
in the northern hemisphere, a mild start to winter.
Low oil prices and worries about higher interest rates have sent
shockwaves through the energy-dominated U.S. high-yield corporate
bond markets.
Almost $2 trillion of debt sold by energy and mining companies since
2010, much of it in the form of high-yield or 'junk' bonds from
small shale gas firms, is facing a wave of credit rating downgrades,
and defaults are rising
Losses this year, as measured by the iShares iBoxx $ High Yield
Corporate Bond ETF, are around 12 percent, in what some investors
see as an echo of the 2008 credit crisis.
Credit market concerns have also pushed the yield premium of
short-term Italian and Spanish bonds over German benchmarks to their
highest since July.
"On the one hand, if you saw a material rise in corporate bond
defaults, you could expect spreads to be wider than they are today,"
Mark Dowding, co-head of investment grade debt at BlueBay Asset
Management, said.
"But if you are going into this world of rising defaults, all things
being equal central banks will need to do more policy accommodation,
so actually it raises the prospect of the ECB needing to do more
QE", or quantitative easing.
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The first U.S. rate rise since 2006 is largely priced in, with the
Fed expected to increase its targeted rate range to 0.25-0.5 percent
from the current zero to 0.25 percent.
The dollar index, which measures the U.S. currency against a basket
of its peers, held steady. The euro rose 0.1 percent to $1.0997,
having climbed as far as $1.1059, while the yen weakened 0.1 percent
to 121.11 per dollar.
"Given all the concerns, there is a risk that the Fed could opt for
a dovish rate hike and downgrade the path for future rate
increases," said Yujiro Goto, currency strategist at Nomura.
YUAN WEAKENS
China's yuan, however, weakened against the dollar after the
Chinese central bank set the mid-point of the permitted trading band
at a 4-1/2-year low for a second day.
The Swedish crown rose versus the dollar and euro after the Riksbank,
Sweden's central bank, kept interest rates unchanged as expected but
said it was ready to act if a slight rise in inflation stalled.
Gold held steady at $1,062.95 an ounce.
(Additional reporting by Lisa Twaronite in Tokyo, Henning Gloystein
in Singapore, Anirban Nag and John Geddie in London; Editing by Mark
Trevelyan)
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