China data eases rate fears, world stocks up

By @ibtimes on

Chinese inflation data helped ease investor concerns on Tuesday that the world's No 2 economy will have to tighten monetary policy more aggressively, but other data releases kept markets in a tight range.

The dollar was slightly weaker against a basket of major currencies <.DXY>, while the euro hovered near three-week lows as concern about euro zone debt rose up again.

World stocks as measured by MSCI <.MIWD00000PUS> were up 0.2 percent, not far from last week's 30-month highs. Japan's Nikkei <.N225> logged a 10-month closing high and Europe's FTSEurofirst 300 was up a quarter of a percent.

A raft of data -- including euro zone fourth-quarter GDP, German business sentiment and UK inflation -- lay ahead during the session.

China's inflation was lower than expected at 4.9 percent in the year to January.

Although price pressures continued to build and will force the central bank to stick to its course of gradual monetary tightening, the report took the edge off concern about firmer action.

The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase, said Etsuko Yamashita, chief economist at SMBC.

Inflation pressures, particularly in emerging markets, have been part of the motivation this year for investors to move into developed stock markets.

A number of those countries are also having problems, however, particularly Britain. U.S. consumer price data, meanwhile, will be reported on Thursday.

In Europe, the French and German economies expanded by less than expected in the fourth quarter, data showed on Tuesday, suggesting the euro zone may not have accelerated out of a third-quarter slowdown.

EURO PERIPHERY

The euro steadied, supported by Asian demand, but was held back by skepticism that European leaders would come up with a quick and effective solution to tackle the euro zone's debt and banking problems.

It hovered near a three-week low hit a day earlier when reports about ailing lender WestLB triggered another outbreak of worries on euro zone debt and banking problems.

Peripheral euro zone yield spreads have been widening in the past week on uncertainty over a rescue package for the region, and there was some disappointment after a meeting of European finance ministers on Monday.

Initial optimism at the beginning of the year over a comprehensive bailout package in the euro zone is now starting to fade away, said Lee Hardman, currency strategist at BTM UFJ.

The euro was flat against the dollar at $1.3480, not far from a three-week low of $1.3428 hit on Monday.

The 10-year German bond yield was up 1 basis point at 3.31 percent, while the two-year yield rose to same to 1.41 percent.

(Additional reporting by Neal Armstrong; Editing by Hugh Lawson)

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