Dollar inches up on Yellen hopes, Greek breather

[February 24, 2015]  By Marc Jones

LONDON (Reuters) - World shares held near all-time highs on Tuesday on relief that Greece had submitted reform plans and the dollar was firmer on expectations that Fed chair Janet Yellen would keep the bank nudging towards U.S. rate hikes.

European bourses traded around breakeven as Greece delivered a list of economic reforms to the euro zone that it hopes will secure a four-month extension of its financial lifeline.

"In the Commission's view, this list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review," one European Commission source told Reuters.

Greek shares <.ATG> jumped as much as 7 percent and Greek, Italian and Spanish bond yields all nudged lower as the latest bout of euro zone break-up jitters eased.

In the currency markets, it was the dollar that was calling the shots, however, as traders waited to see what message Federal Reserve chief Yellen sends in Washington later.

The dollar gained 0.4 percent to 119.34 yen and was up roughly 0.15 percent against the euro at $1.1313, while U.S. 10-year Treasury yields held around 2.07 percent, compared to last week's high of 2.1640 percent.
 

Yellen testifies before Congress on Tuesday and there is much uncertainty over whether she will echo the dovish tone of the minutes from the Fed's last meeting, or reaffirm June as a window for a first rate hike.

"Given the growing evidence that the backdrop can more than withstand what will amount to a modest increase in the policy rate, we find it hard to imagine Yellen will promote the 'lower for longer' mantra that was espoused in the minutes," RBCM chief U.S. economist, Tom Porcelli, said.

"Economic fundamentals quite clearly show we no longer need emergency levels of accommodation."

NEAR AN ALL-TIME HIGH

Early gains for European shares saw the region's benchmark FTSEurofirst 300 index notch up a new seven-year high although investors were reluctant to make any big bets ahead of Yellen's testimony.

Better-than-expected results from mining giant BHP Billiton helped London's FTSE stay in reach of its 1999 record high while Germany's DAX  hovered at its own peak as Telefonica Deutschland raised cost-cut estimates from its E-Plus buy.

Asian share markets had also crept higher overnight as Tokyo scored another 15-year peak and MSCI's broadest index of Asia-Pacific shares outside Japan  inched up 0.16 percent.

Oil prices steadied after their latest retreat, with U.S. crude at $48.88, while Brent  ticked down to $58.43 a barrel.

Russia's rouble drifted down with crude prices. The country's government bonds also took a hit as Barclays said it would remove them from its benchmark global indexes after Moody's followed Standard and Poor's on Friday in cutting them to "junk" status. Russian markets were shut on Monday.

Safe-haven gold meanwhile slipped to a near seven-week low. Expectations the Fed will hike rates this year amid signals of a strengthening U.S. economy have curbed gold's safe-haven appeal in recent weeks.

"With a healthy U.S. economy, that gives the impetus for the Fed to start normalising interest rates and this is a very bearish signal for gold," said OCBC Bank analyst Barnabas Gan, who sees gold at $1,000 and ounce by the year-end.

(Additional reporting by Wayne Cole in Sydney and Manolo Serapio Jr in Singapore; Editing by Louise Ireland)

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