Dollar surge reins in European, US stock advance

AP News
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Posted: Dec 04, 2009 12:16 PM

European and U.S. stock markets pared much of their gains Friday as investors reassessed an upbeat U.S. jobs report and a surging dollar hit commodity stocks hard, particularly in London.

In Europe, Germany's DAX closed up 47.30 points, or 0.9 percent, to 5,817.65 while the CAC-40 in France was up 47.51 points, or 1.3 percent, at 3,846.62.

The FTSE 100 index of leading British shares underperformed its counterparts, closing up only 9.36 points, or 0.2 percent, at 5,322.36 as the sharp rise in the dollar weighed on commodity stocks. A stronger U.S. currency typically causes commodity markets, priced in dollars, to fall.

Xstrata PLC, Rangold Resources PLC and Antofagasta PLC were among the biggest losers Friday.

On Wall Street, the Dow Jones industrial average was down 16.63 points, or 0.2 percent, at 10,349.52 around midday New York time, while the broader Standard & Poor's 500 index rose 0.63 point to 1,100.55.

Earlier in the session, stocks in Europe and the U.S. had traded substantially higher after Labor Department figures showed a surprise fall in the U.S. unemployment rate in November to 10 percent from 10.2 percent and that only 11,000 jobs were lost during the month, the lowest for two years. Investors were anticipating an unchanged unemployment rate and a near 150,000 rise in the number of unemployed.

Though technically out of recession, the U.S. economy has shed jobs at a hefty rate, but Friday's figures indicated that the pace of these losses was not as sharp as estimated _ both September and October were revised to show that payrolls were actually 159,000 higher than previously reported.

At one stage, the S&P traded as high as 1,119.16, its highest level for 2009 and Europe's main indexes were all more than a percentage point higher.

However, the early euphoria surrounding the figures dissipated as investors realized much of the outperformance was due to temporary and seasonal factors.

"Investors should remain cautious as to whether this is just a blip or the beginnings of a trend," said Arifa Sheikh-Usmani, an equity trader at Spreadex.

The monthly jobs figures often affect investor sentiment for a week or two and could help the nine-month bull run continue through to the year-end, but analysts cautioned that year-end profit-taking could increasingly become the norm.

"The scope to start booking profits cannot be understated especially with the year end now rapidly approaching," said Anthony Grech, market strategist at IG Index.

However markets respond in the coming days and weeks, analysts said the jobs news has ratcheted up expectations that the U.S. Federal Reserve will start to withdraw its extraordinary liquidity measures introduced over the last couple of years sooner than previously thought, though an increase in interest rates is unlikely anytime soon.

On Thursday, the European Central Bank announced that it was beginning the process of withdrawing liquidity from the markets but stressed that talk of a rate hike was premature.

The dollar was also heavily in demand after the jobs data _ the euro was down 1.1 percent at $1.4875 while the dollar pushed up 1.9 percent to 89.93 yen.

The strength of the U.S. currency pushed the price of gold down 3.1 percent to $1,181 an ounce _ gold invariably moves in opposite direction to the U.S. currency.

However, oil prices strengthened amid hopes of rebounding U.S. demand. The benchmark crude contract for January deliver jumped 36 cents to $76.82 a barrel.

Earlier in Asia, Hong Kong's Hang Seng closed down 55.72 points, or 0.3 percent, to 22,498.15, but Japan's Nikkei 225 stock average bucked the trend and ended up 44.92 points, or 0.5 percent, to 10,022.59.

Elsewhere in Asia, Australia's market dropped 1.5 percent while Taiwan's market shed 0.4 percent.

However, Shanghai's market gained 1.6 percent and South Korea's Kospi rose 0.6 percent after the government said the economy, Asia's fourth-largest, expanded a revised 3.2 percent in the third quarter. That was a better performance than initially estimated thanks to stronger growth in manufacturing, exports and services.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.