By Agency Reporter

Tuesday, 15 Feb 2011

World stocks inched towards last week’s 30-month high on Monday as China’s shrinking trade surplus underscored its robust domestic demand and talk of slower-than-expected inflation eased policy tightening concerns.

China’s trade surplus fell to its lowest in nine months in January when imports surged, highlighting the country’s massive appetite for raw materials.

Solid export growth also hinted at solidifying recoveries in the United States and European economies.

Traders said that China’s consumer prices might have risen as little as 4.9 per cent in the year to January, the lowest of 26 forecasts in a Reuters poll, which gave a median prediction of a 5.3 per cent rise.

This eased concerns that China’s central bank would have to raise interest rates aggressively.

“The talk of the Chinese inflation data and the export and import data is going to boost the market,” Heino Ruland, strategist at Ruland Research in Frankfurt said.

“Inflation has been the major worry and there has been a fear of monetary overkill, but until the data is released (on Tuesday) we could see a bit of volatility in the market.”

The MSCI world equity index rose 0.2 per cent, having hit its highest level since August 2008 last week.

Thomson Reuters’ global stock index gained 0.3 per cent. US stock futures were down around 0.1 per cent, pointing to a weaker open on Wall Street.

The FTSEurofirst 300 index rose 0.2 per cent to hit a 29-month peak.

Emerging stocks added 1.1 per cent. Shanghai stocks hit an eight-week high, scoring the index’s biggest single-day percentage gain since mid-December.

US crude oil erased early losses to stand steady at $85.53 a barrel after hitting a 10-week low last week.

The euro fell to a three-week low of $1.3450 on concerns surrounding the fate of German lender WestLB.

Sources told Reuters that German financial regulator, BaFin, was being involved in the WestLB restructuring talks as the bank struggles to come up with a rescue deal.

“The WestLB news doesn’t provide a great deal of optimism to the euro at the start of the week,” said Jeremy Stretch, currency strategist at CIBC.

He added, “Structural negatives in the euro zone haven’t gone away, and some of those risks are due to the banking sector.

“WestLB’s problems are a reflection of that.”

The dollar rose by 0.2 per cent against a basket of major currencies.

There was no immediate reaction from President Barack Obama’s budget proposal to cut the US deficit by $1.1tn over 10 years.

The dollar has been supported by rising US yields, which hit their highest in nearly 10 months last week.

“As long as US yields hold current high levels it is hard to oppose dollar gains,” Lloyds TSB said in a note to clients.

“But it is questionable how sustainable the current level of US yields is with a dovish (Federal Reserve) stance, and the dollar typically struggles to find much traction in a ‘risk on’ world.”

German government bond futures were steady on the day.

European finance ministers were to discuss on Monday how to give their euro zone rescue fund more flexibility and firepower and how to tackle debt crises after 2013, but final decisions are unlikely before March.

Source: Punch