* G20 triggers heavy dollar selling, stock buying
* Federal Reserve quantitative easing prospects drive risk
* All three major U.S. indexes up about 1 percent
(Rewrites; changes byline, dateline, previous LONDON)
By Jennifer Ablan and Jeremy Gaunt
NEW YORK/LONDON, Oct 25 (Reuters) - Investors on Monday
continued a familiar pattern of heavily selling dollars and
buying emerging-market shares, calculating that a Group of 20
meeting that produced lots of noise but no firm policy
initiatives had left market trends unchanged.
MSCI's emerging market stock benchmark <.MSCIEF> shot up
more than 1 percent for a year-to-date gain of nearly 13
percent. The dollar lost 0.66 percent against a basket of
currencies <.DXY>.
European shares gained and all three major U.S. indexes
rose about 1 percent in early New York trading. G20 finance
ministers pledged on Saturday to move toward market-determined
exchange rates and commit to a variety of policies to reduce
excessive external imbalances.
But no major policy initiatives emerged and the United
States failed in an attempt to shrink China's surplus.
Consequently, investors extended the recent pattern of selling
the dollar in expectation of further quantitative easing
asset-buying from the Federal Reserve, which essentially
entails printing more dollars and lowers their value.
"By demanding 'market determined exchange rates' (at the
G20) the U.S is opening the floodgates for a further dollar
depreciation due to the ultra-expansionary monetary policy in
the U.S.," Commerzbank analysts said in a note.
The dollar weakened broadly, losing 1 percent against the
Japanese yen <JPY=> while the euro gained 0.25 percent to
$1.3988 <EUR=>. Analysts at Goldman Sachs said the Fed is
almost certain to announce renewed monetary easing at next
week's policy meeting. The analysts said the Fed may announce
$500 billion in asset purchases or a bit more over a period
about six months, and the size could eventually reach $2
trillion.
PUMPING UP STOCKS
The prospect of a weaker dollar and higher emerging market
currencies, as well as economic growth differentials, have
already triggered massive investment flows into emerging
markets.
But the idea of huge dollar liquidity has also pumped up
equities in general.
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.5 percent at 1,094.71 points. Mining stocks
were leading the charge on the assumption that a weaker dollar
drives commodity prices higher.
"Profitability and earnings are going to be up. This is a
sector that will have earnings upgrades. Even if the dollar
started to steady, there are supply constraints," said Philip
Isherwood, European equities strategist at Evolution
Securities.
Japanese equities fell, with the Nikkei <> losing 0.27
percent as exporters were hurt by the rising yen.
JPMorgan Asset Management, meanwhile, warned its clients
not to become too carried away with the prospect of
quantitative easing.
"Strong asset price gains were seen as one of the primary
objectives of QE, with the central bank reportedly keen to
boost household wealth and to prompt risk appetite within the
economy," it said.
"As a result, strong gains ahead of the FOMC arguably
reduce the need for QE and thus increase the chances of
disappointment when the Fed finally announces the outcome of
its deliberations."
In that regard, benchmark indexes were up on Monday.
The Dow Jones industrial average <> was up 99.60
points, or 0.89 percent, at 11,232.16. The benchmark Standard &
Poor's 500 Index <.SPX> was up 10.80 points, or 0.91 percent,
at 1,193.88. The Nasdaq Composite Index <> was up 24.47
points, or 0.99 percent, at 2,503.86.
U.S. Treasury debt prices also were higher.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
16/32, with the yield at 2.50 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 1/32, with the yield at 0.35 percent.
The 30-year U.S. Treasury bond <US30YT=RR> was up 31/32, with
the yield at 3.88 percent.
U.S. light sweet crude oil <CLc1> rose $1.39, or 1.7
percent, to $83.08 per barrel, and spot gold prices <XAU=> rose
$10.41, or 0.78 percent, to $1337.60. The Reuters/Jefferies CRB
Index <.CRB> was up 3.33 points, or 1.12 percent, at 300.56.
(Editing by Padraic Cassidy)
