European stocks gained and the euro strengthened after Standard & Poor’s raised its outlook on Portugal’s credit rating before central bank policy meetings in the region. Asian stocks fell from a 19-month high and the British pound slid to its weakest level since July 2010.
The Stoxx Europe 600 Index was up 0.1 percent as of 8.08 a.m. in London, while Standard & Poor’s 500 Index futures added 0.1 percent. The MSCI Asia Pacific Index of shares lost 0.3 percent. The Nikkei 225 Stock Average pared gains, after breaching 12,000 for the first time since 2008, and the yen rose against the dollar following a Bank of Japan meeting. The euro climbed 0.3 percent, the pound fell 0.2 percent and 10-year Treasuries yielded 1.93 percent.
“There is a tug of war between monetary policy and expectations of an economic recovery,” said Masato Yanagiya, the head of currency and money trading in New York at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “Stocks are in a high price range, while 10-year Treasury yields are below 2 percent.”
The European Central Bank will keep its benchmark interest rate at a record low today, a Bloomberg News survey showed. Bank of England policy makers may boost asset purchases as they seek to revive Britain’s economy. The Bank of Japan rejected a call for an immediate start to open-ended asset purchases in Governor Masaaki Shirakawa’s final meeting, a decision predicted by all 23 economists surveyed by Bloomberg.
The ECB has to decide how big a threat Italy poses to Europe’s recovery after a rejection of austerity in the euro area’s third-largest economy has produced a political stalemate. Policy options available to the ECB include rate cuts, more long-term loans to banks, and measures to encourage bank lending to small and medium-sized companies that are struggling to gain access to credit, economists said.
The pound sank as low as $1.4967, before trading at $1.4973. The euro traded at $1.3008, from $1.2967 yesterday, after Portugal’s outlook was revised to stable from negative by S&P. The Dollar Index was near a six-month high before data forecast to show U.S. hiring picked up in February, which would add to the case for the Federal Reserve to rein in stimulus.
“If non-farm payrolls are strong, you’ll probably continue to see dollar strength,” said Tim Kelleher, the Auckland-based head of institutional foreign-exchange sales at ASB Institutional, a unit of Commonwealth Bank of Australia. “People are thinking about the Fed’s exit strategy so that’s helping the U.S. dollar.”
The Shanghai Composite Index fell 1 percent before trade data tomorrow. China’s exports probably grew 8.1 percent last month, slowing from January’s 25 percent gain, according to the median estimate of economists surveyed before tomorrow’s trade report. Nomura Holdings Inc. predicts a surprise drop in exports is likely given the strong correlation with shipments from South Korea, fell 8.6 percent.
The MSCI Asia Pacific Index retreated from its highest close since August 2011, with about five stocks falling for every four that advanced.
“The market was due for a correction,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $126 billion under management. “When shares run up the way they have, they become technically overbought and have to pull back for a breather. That’s what we are seeing today. I don’t think valuations are too expensive.”