China data lifts shares, doubts creep in over Fed

Mon Sep 9, 2013 7:34am EDT
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By Richard Hubbard

LONDON (Reuters) - An upswing in Chinese exports lifted world equity markets on Monday, though worries about Syria and uncertainty over when and by how much the U.S. central bank will cut its stimulus program saw investors hedge their bets.

In Europe the differing views over the prospects of an early reduction by the U.S. Federal Reserve of its bond-buying stimulus after Friday's disappointing payrolls report sent equity markets lower, though German 10-year bond prices also fell.

The dollar held steady against most major currencies, caught between the view that the Fed's tapering and resulting further rises in U.S. bond yields would start soon, and talk a move could be delayed by the weak jobs data.

"Most people felt that September was nailed on for Fed tapering and it was only a question of the amount," Daragh Maher, currency strategist at HSBC. "It's looking slightly more dubious now.

"Ultimately they are going to taper, they are moving towards the exit whereas the ECB and the Bank of England are saying if anything there is pressure for additional easing," he added.

Further improvement in the U.S. labor market is the key for the Fed to begin scaling back its $85 billion a month of bond purchase, but Friday's August jobs report showed employers had hired fewer workers than expected last month.

This was partly offset by comments from two Federal Reserve officials over the weekend suggesting the tapering plan is still on track. Esther George, the Kansas City Fed's consistently hawkish leader, said she favored trimming the bond-buying program. Chicago Fed President Charles Evans said he could be swayed towards a pullback.

The 10-year U.S. Treasury yield stood at around 2.9 percent on Monday, off a two-year high of just above 3 percent hit on Friday though hanging onto the sharp gains linked to the tapering talk of recent months.   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange August 26, 2013. REUTERS/Remote/stringer