GLOBAL MARKETS-Euro steadier after bounce, stocks ease

Fri Jan 14, 2011 1:32am EST
* Euro rally pauses, but on track for best week in 20 months
* Nikkei slips from 8-month peak
* Copper and oil also soften (Updates prices)
By Ian Chua

SYDNEY, Jan 14 (Reuters) - The euro paused on Friday but was still
on track to post its best weekly performance against the dollar in
20 months, while Asian equity markets struggled to extend recent
gains, with Japan's Nikkei retreating from an 8-month peak.
European shares were expected to open lower with financial
spreadbetters calling for declines of up to 0.5 percent.

The common currency fell prey to profit taking, having raced to a
high of $1.3383 on Thursday after the European Central Bank caught
markets off guard by hinting it could lift interest rates to contain
inflation, even while the bloc was tackling a debt crisis. It was
last at $1.3338, slightly below late U.S. levels.

The hawkish comments followed interest rate hikes in Thailand and
South Korea this week as policymakers grow increasingly worried
about inflationary pressures.

"The signals from the ECB also reinforce our view that it will hike
before the Fed does," said Ken Wattret, BNP Paribas chief eurogroup
market economist.

"As relatively little in the way of rate hikes has been priced in
for this year, the market is likely to continue to shift in the
direction of early tightening, absent a resurgence in market

The euro's rise marked an impressive turnaround from a four-month
low around $1.2871 on Monday and set the scene for a retest of the
December high of $1.3500. It is up about 3.5 percent this week, the
biggest weekly rise since May 2009.

Well-received bond sales from highly indebted euro zone members
Portugal and Spain this week and speculation that European
policymakers will boost their war chest against attacks on euro zone
sovereign debt all contributed to the currency's better tone.

Gains in the euro saw the dollar index , which tracks the
greenback's performance against a basket of major currencies, fall
below 80.000 from this week's high of 81.313.

Tsutomu Soma, manager of foreign securities at Okasan Securities,
said the euro's rise was nothing more than short-covering from
overselling late last year on excessively bearish view on the euro

"Given that the fiscal problems in the region are unresolved,
investors will be cautious about chasing the currency higher."
Source: Reuters.Com