Growth fears boost safe havens, shares up on rate hopes

Tue Apr 23, 2013 8:21am EDT
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By Richard Hubbard

LONDON (Reuters) - The dollar hit a two-week high against the euro, commodities fell and German bond prices jumped on Tuesday when data revealed slower business activity in Germany and China, the world's two biggest exporters, fuelling global growth fears.

European shares, however, were given a boost by the evidence that Europe's biggest economy was slowing, as that strengthened a view among investors that the European Central Bank will cut its key interest rate at an upcoming policy meeting on May 2.

The FTSEurofirst 300 index .FTEU3 was up 1 percent at 1,167.01 points by midday, and U.S. stock index futures pointed to firm start on Wall Street on the back of strong corporate earnings reports. .N .EU

"Right now we are in a place of sub-par global growth, and the euro zone is lagging behind, stuck in recession," said Nick Kounis, head of macro research at ABN-AMRO.

"It makes us more confident of an ECB rate cut in May, but really the ECB should be doing more and thinking of other ways to stimulate growth," he said.

The latest Purchasing Managers' Indexes (PMIs) for the euro area showed business activity in Germany shrank for the first time in five months in April, while a broader gauge of the wider 17-nation zone showed the region still mired in recession.

A similar survey for U.S. manufacturing is due later in the day and is expected to show that growth in factory activity there slowed slightly this month, while an earlier Chinese PMI, produced by HSBC, revealed factory output slipping in April.

In the wake of the data a search for safety by investors led to gains in the yen against both the euro and the dollar, while the greenback rose against a basket of major currencies, and U.S. Treasuries and German government bond prices also rose.   Continued...

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange April 12, 2013. REUTERS/Remote/Lizza David