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 Markets, still on high after the euro zone agreed to extend Greece's
aid deal, were given a further lift as slightly better-than-expected
Chinese factory activity data helped ease concerns about the extent
of the country's economic slowdown.
European bourses opened little changed, happy to take a breather
after six days of unbroken gains and a surge since the start of the
year that has seen the benchmark FTSEurofirst 300 race up roughly 17
percent.
Following more rises for Wall Street and in Asia overnight, MSCI's
46-member All Country World Index was up 0.2 percent at 433.74
points and straining for the 434.24 all-time peak it scored back in
September.
"All the stars have been aligned recently, we have had the lower
euro, the lower oil and the lower cost of funding," said Didier
Duret, chief investment officer at ABN Amro.
"For the rally to continue we now need two things. The recovery has
to be driven by hard facts, the consumer and manufacturing. And we
need the hope that the Fed won't be too aggressive with hiking rates
and yesterday we got that message."
Yellen had told Washington's Senate Banking Committee that the U.S.
central bank was preparing to consider interest rate hikes "on a
meeting-by-meeting basis", but that she and her colleagues would
provide markets with a clearer signals before they moved.
That was a subtle change of emphasis in how the Fed has been
speaking about its plans, as it suggests though a hike could still
come as early as June, a later date is also possible against the
backdrop of weak U.S. inflation and a sluggish global economy.
The dollar had dropped in the wake of Yellen's comments
overnight and continued to slip against a basket of currencies in
early European trading.
It fell 0.2 percent against the yen to 118.73 yen , while the euro
was up 0.3 percent at $1.1375. Sterling too, was up by a similar
margin at $1.5502.
FRAGILE CHINA
In China, the world's second largest economy, the closely watched
flash HSBC/Markit Purchasing Managers' Index (PMI) inched up to
50.1, above the 50-point level that separates growth in activity
from a contraction on a monthly basis.
It beat consensus estimates for a reading of 49.5 even as China's
manufacturers still face considerable risks from weak foreign demand
and deepening deflationary pressures.
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"We believe more policy easing is still warranted at the current
stage to support growth," said Qu Hongbin, HSBC's chief economist in
China.
MSCI's broadest index of Asia-Pacific shares outside Japan had ended
up 0.85 percent, though Japan's Nikkei snapped a five-day
winning streak after hitting a 15-year high in the previous session.
A backdrop of weakening global growth has been keep investors on the
edge about the Fed's plans, with some worrying a premature start to
the U.S. rate hike cycle could dent momentum in the U.S. economy
even as Europe and China continue to struggle.
Because Yellen gave no sign of an imminent rate increase, investors
piled back into U.S. Treasuries, sending benchmark 10-year yields
back below 2 percent and two-year yields to 2-1/2-week lows.
News on Tuesday that euro zone partners had approved Greece's reform
plan, a requirement for Athens to receive a four-month extension to
its bailout, continued to help European bond markets, although
Greece itself saw its yields nudge slightly higher.
Among commodities, oil overcame pressure from expectations that this
week will show U.S. crude inventories rising again, garnering
support from news of a shutdown of Libyan oilfields.
Brent added about 0.5 percent to $58.98 a barrel, though U.S. crude
edged down slightly to $49.19. Gold added about 0.9 percent on the
day to $1,211.30 per ounce as it inched off a seven-week low.
(Editing by Alison Williams)
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