September 19, 2012 / 9:34 AM / 5 years ago

Bank of Japan easing helps shares but euro worries return

A trader stands in front of his desk below the DAX board at the Frankfurt stock exchange September 19, 2012. REUTERS/Remote/Lizza May David

LONDON (Reuters) - Global shares rose and the yen fell to a one-month low on Wednesday after the Bank of Japan became the latest leading central bank to offer aggressive new measures to stimulate economic activity.

Nagging concerns about debt-strained euro zone members Greece and Spain limited the gains, however, pushing the euro back towards the $1.30 mark against a mildly stronger dollar and dragging back oil prices.

“The feel-good factor from the Bank of Japan’s move has worn off quickly and it’s back to European matters,” said Investec strategist Phillip Shaw.

“The questions are over the Spanish bailout and whether Spain will receive support from the ECB. There is also some focus on Greece and whether it will get some more time for its spending cuts.”

Japanese stocks rallied to four-month high after the BOJ said it would increase its asset buying and loan program, currently its main monetary easing tool, by 10 trillion yen ($127 billion) to 80 trillion.

Its announcement followed a decision by the Federal Reserve to pump $40 billion a month into the U.S. economy until the jobs market improved and new plans from the European Central Bank to fight the region’s debt crisis.

But the positive mood was waning by midday in Europe. The MSCI index of global stocks .MIWD00000PUS and top European shares .FTEU3 clung to minor gains of between 0.05 and 0.3 percent as euro zone worries sent German, French and Spanish markets into negative territory before rebounding.

With key housing market data expected to confirm a recent uptick in the sector Wall Street was expected to open higher after dipping on Tuesday.

Many big stock markets have risen 15-20 percent since June on expectations of central bank measures, all of which have either been met or exceeded over the last two weeks.

Analysts are now questioning whether the rises can be sustained with economic fundamentals still decidedly weak.

“What we have seen over the last two weeks has been positive for stock markets because there is enormous liquidity, and due to low interest rates there is a lack of alternative investment opportunities,” said ING analyst Carsten Brzeski.

“If the central banks continue to ease policy then it will of course be positive for markets but there is not that much more room to ease. In the next one to two months the only additional easing I could see is another rate cut by the ECB.”

EURO JITTERS

The Bank of Japan action helped to offset concerns about tensions between Japan and China over a disputed group of islands in the East China Sea.

The yen fell to a one-month low of 79.23 to the dollar while euro zone jitters pushed the euro down 0.1 percent to $1.3032, a full cent below a four-month high set on Monday.

Bond markets were mixed. With riskier assets looking more appealing due to the central bank stimulus, yields fell slightly on Italian and Spanish bonds.

But the ongoing euro zone worries saw the strongest demand since January at a German two-year debt auction. Bund futures were last 30 ticks higher on the day at 139.76, moving further from the 5-1/2 month low of 138.41 hit on Monday.

Oil prices were also impacted, giving up earlier gains to sink to a six-week low of $111.23 a barrel. They remain more than 25 percent higher than three months ago, however.

Gold, which has a twin appeal as a safe-haven asset and inflation hedge, shrugged off the concerns to sit at a 6-1/2 month high of $1,772.49 an ounce.

China’s economy remains a major worry for global markets. The government said on Wednesday the export outlook was grim and demand may be weaker in the next few months than it has been so far this year.

“With the European Central Bank, the U.S. Federal Reserve and now the Bank of Japan - the world’s major central banks - moving to ease, there will now be expectations for the PBOC (People’s Bank of China) to follow suit,” said Jackson Wong, Tanrich Securities’ vice-president for equity sales.

Minutes from the Bank of England’s latest meeting showed policymakers were unanimous in keeping interest rates and their asset purchases unchanged, but a number indicated the economy may need additional support in the coming months.

Additional reporting by Anirban Nag; editing by Anna Willard/David Stamp

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