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Shares flat as optimism for early central bank action cools

Traders work on the floor of the New York Stock Exchange.

NEW YORK: Global shares were little changed Wednesday, while the euro fell as a lack of details prompted investors to tone down optimism for early central bank action to tackle the eurozone debt crisis.

Risky assets began rising Friday after U.S. jobs data eased concerns about global growth but supported hopes of further policy easing by the Federal Reserve. Last week’s signal by European Central Bank President Mario Draghi that it may ease borrowing costs for Spain and Italy provided further optimism.But conviction waned Wednesday after the Bank of England gave no hint of future action despite slashing its growth forecast.

The uncertain direction for monetary policy made investors cautious and U.S. and European shares drifted slightly higher in midday trade after declines earlier.

“We’re certainly skeptical about the ability of the authorities to really make big changes in the eurozone landscape,” said Richard Batty, strategist at Standard Life Investments.

“I think this is just one of those days where the market is coming more round to a more skeptical view of whether they can achieve what they need to achieve given how poor these economies are, and how difficult it is to make the fiscal and structural adjustments to make them more competitive.”

The U.K. central bank said it did not expect Britain’s recession-hit economy to show much growth at all this year despite all its efforts to pump in cash, but it remained equivocal on whether further measures were likely.

Investors had hoped the Bank of England would point to an easing in policy later in the year as the gloomy contents of its quarterly economic outlook had been widely anticipated.

In a further sign of Europe’s worsening economic conditions, France’s central bank said the French economy was likely to slip into a shallow recession in the third quarter.

The Chinese central bank is next to face the spotlight, with a batch of economic data due Thursday likely to draw attention to the nation’s cooling growth rate.

Brent crude hit a three-month high after data showed U.S. crude stocks fell sharply and as concerns deepened over the immediate outlook for North Sea oil production.

Brent futures for September were up 90 cents to $112.90 a barrel after earlier hitting a high above $113. U.S. crude gained 65 cents to $94.32.

The FTSEurofirst 300 index of top European shares provisionally closed up 0.1 percent. European shares had gained since Draghi first signaled a more interventionist stance to defend the euro two weeks ago.

The Dow Jones industrial average edged up 16.12 points, or 0.12 percent, at 13,184.72. The Standard & Poor’s 500 Index was up 1.01 points, or 0.07 percent, at 1,402.36. The Nasdaq Composite Index was up 2.42 points, or 0.08 percent, at 3,018.28.

“We’ve had a pretty good run,” said Lazard Capital Markets Managing Director Art Hogan. “We’re in a position in the market now where there are no clear catalysts and yet we’ve been inching higher. The market seems to be finding its path of least resistance.”

Standard Chartered Bank, under fire from accusations it violated U.S. laws by hiding $250 billion in transactions tied to Iran, clawed back some of its huge losses and was up more than 7 percent. The British bank’s shares dived 16.4 percent Tuesday on hefty volume.

The bank’s top executives were working on its defense strategy Wednesday, having already contested the regulator’s figures.

MSCI’s world equity index inched up 0.06 percent.

The euro was down 0.3 percent at $1.2365, turning lower after gains that took it to a one-month high of $1.2443.

Investors were looking for more details of the ECB’s latest proposal to tackle the three-year-old debt crisis that has threatened the survival of the 17-nation currency bloc.

Draghi has said the bank may buy the short-term bonds of eurozone nations battling with rising yields on their debt, but that any action had to be in conjunction with the eurozone’s bailout funds and under strict conditions.

In the debt market, Germany’s sale of 3.4 billion euros of 10-year government bonds attracted more demand than a similar auction last month, indicating investors’ appetite for safe-haven assets has not diminished much since Draghi’s statements.

Ten-year Spanish government bond yields briefly touched the 7 percent level – beyond which funding costs are perceived to be unaffordable in the long run – on the growing view that it may take time until Spain asks for a bailout.

The benchmark 10-year U.S. Treasury note was down 1/32, the yield at 1.63 percent.

 
A version of this article appeared in the print edition of The Daily Star on August 09, 2012, on page 6.

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