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Thursday, 4 August 2016

Financials lift stocks in Europe and Asia, pound dips before BoE decision


Shares rose in Europe and Asia, lifted by gains in financial stocks, while sterling dipped against the dollar before a Bank of England policy meeting expected to deliver a first cut in interest rates since 2009.

The U.S. currency strengthened against most of its major rivals, including the yen, after forecast-beating private sector employment data on Wednesday led to marginally increased expectations of a Federal Reserve interest rate rise by the end of the year.

Sterling weakened by 0.3 percent to $1.3290 before the BoE's policy decision at 1100 GMT, though many other markets were focussed on the latest monthly U.S. jobs report, due on Friday.

The BoE is expected to cut its main interest rate by at least a quarter percentage point to a record low 0.25 percent as the British economy stands on the brink of recession after June's vote to leave the European Union.

Many economists also see the BoE resuming purchases of government bonds and analysts have warned the pound would rise sharply if the Bank did nothing.

"I think a cut plus 100 billion pounds in new quantitative easing is probably the barrier (to more falls)," said Richard Benson, co-head of portfolio investment at currency fund Millennium Global in London.

Britain's FTSE 100 stocks index, dominated by internationally-focused companies, fell 0.1 percent. The more UK-focused FTSE 250 index was up 0.1 percent.

The pan-Europe STOXX 600 index rose 0.3 percent, led higher by a 1.7 percent rise in financial stocks. European bank shares tumbled earlier this week after stress tests on lenders raise concerns some would have to raise extra capital.

Stronger-than-expected earnings from some banks have since soothed investors' nerves.

"Looser monetary policy should be supportive for the UK and European stock markets," said Hantec Markets analyst Richard Perry.


MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent, led by gains in resource shares. Tokyo's Nikkei index ended a see-saw session up 1.1 percent on strong gains from financials and with the yen weaker against the dollar.

The dollar index, which measures the greenback against a basket of major currencies, rose 0.1 percent. The yen fell 0.1 percent to 101.33 per dollar and the euro pulled back a similar amount to $1.1138.

The yen has gained almost 4 percent since Friday, when monetary easing steps by the Bank of Japan fell short of market expectations.

The government on Tuesday unveiled a fiscal stimulus package, which led some economists to speculate Japan would rely less on monetary policy to revive the economy, giving the yen another lift and sending Japanese government bond yields soaring in the worst sell-off in three years.

Most JGB yields rose on Thursday. The 10-year benchmark added 1 basis point to minus 0.08 percent.

German 10-year yields were flat at minus 0.10 percent. U.S. equivalents were almost flat at 1.54 percent, with investors focussed on Friday's jobs report.

A U.S. private-sector employment survey showed 179,000 jobs were added last month, beating forecasts for 170,000.

Oil prices initially rose after data on Wednesday showed a steeper-than- expected decline in U.S. gasoline stocks but concerns about persistent oversupply saw those gains erased.

Brent crude oil, the international benchmark, dipped 11 cents a barrel to was flat at $43.01, having touched a low of $41.51 on Tuesday, its weakest since mid-April.

Gold fell 0.45 percent to about $1,351 an ounce, hurt by the stronger dollar.

Reference: NIGEL STEPHENSON

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