LDN - Business

Investors flee to gold, German bonds as political worries rise

[June 06, 2017] By Abhinav Ramnarayan

LONDON (Reuters) - World stocks fell while safe-haven gold and German government bonds were in demand on Tuesday as tension in the Middle East, an election in Britain and upcoming testimony from the former head of the FBI pushed investors away from risky assets.

European stocks fell early on Tuesday after leading Arab powers cut ties with Qatar the previous day, accusing it of supporting Islamist militants and Iran.

Shares fell in U.S. and Asian trading on the back of concerns over politics either side of the Atlantic.

On what BayernLB analysts called "Super Thursday", British voters will go to polls in an increasingly unpredictable general election, the European Central Bank is due to meet and later the same day former FBI director James Comey will testify before Congress.

"We have a big week or so ahead of us with the UK heading to the polls and the ECB announcing its latest monetary policy decision on Thursday and the Federal Reserve doing the same next Wednesday," said Craig Erlam, a market analyst for OANDA securities.

"Once these events pass, we may have a little more clarity and therefore see a little less caution in the markets."

The diplomatic spat in the Middle East left oil prices hovering just below $50 a barrel and that in turn hit European stocks, which fell across the board; the broad Euro STOXX 600 was down 0.4 percent.

World stocks edged further away from record highs hit last week, the MSCI world equity index <.MIWD00000PUS>, which tracks shares in 46 countries, fell 0.12 percent.

Investors instead bought gold and German government bonds - two of the safest assets in the world - pushing gold prices to six-week highs and German 10-year borrowing costs to six-week lows.

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A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville/File Photo

Erlam said the one area for concern is how steady sterling has been - the currency was up against the dollar and euro on Tuesday - potentially a sign of complacency before the election.

The lead of British Prime Minister Theresa May over the opposition Labour Party ahead of Thursday's general election has narrowed to just 1 percentage point, according to a poll conducted before the attacks in London on Saturday.

Other polls in recent days have found bigger leads for the Conservatives of up to 11 and 12 points.

Sterling edged higher against both the dollar and the euro.

The dollar, meanwhile, touched a seven-month low ahead of Comey's testimony.

Reports suggest the former FBI chief plans to talk about conversations in which U.S. President Trump pressured him to drop his investigation into former national security adviser Mike Flynn, who was fired for failing to disclose conversations with Russian officials.

The dollar index <.DXY>, which tracks the currency against a basket of trade-weighted peers, fell to its lowest level since the November U.S. election.

Data on Monday of U.S. services sector activity slowing in May as new orders tumbled also hit the greenback.

(Additional reporting by Nichola Saminather; Editing by Raissa Kasolowsky)

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