Euro drops, bonds rise after Merkel comments

Wed Jul 18, 2012 6:15pm EDT
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By Herbert Lash

NEW YORK (Reuters) - The euro fell broadly on Wednesday after comments by German Chancellor Angela Merkel reignited worries about the euro zone debt crisis and government bond prices rose over fears of slow economic growth.

In a seeming contradiction to the growth fears among bond investors, U.S. and European stocks jumped, lifted by solid corporate results on both sides of the Atlantic. The benchmark S&P 500 touched its highest level since early May.

Investors who have worried about the impact of a limping global economy on earnings took comfort from corporate results.

Profits at diversified manufacturer Honeywell Inc (HON.N: Quote) topped consensus views amid what the company called a "tough macroeconomic environment," and top chipmaker Intel Corp (INTC.O: Quote) reported healthy gross margins after reducing its growth forecast.

In Europe, the world's largest chip equipment maker, ASML (ASML.AS: Quote), as well as leading Scandinavian bank Nordea (NDA.ST: Quote) and Norwegian fertilizer maker Yara International (YAR.OL: Quote) all beat forecasts.

Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh, said companies are generating less revenue than forecast but earnings are still above expectations.

"Analysts have moved their targets (lower), and companies still are lean and mean and are able to generate profit," she said.

U.S. Treasury debt prices rose as investors turned defensive on persistent economic worries and financial contagion from the euro zone, which pushed bond yields toward historic lows.   Continued...

A trader checks screen data at the IG Index trading floor in London June 11, 2011. REUTERS/Paul Hackett