* Euro slips on report some Spain savings banks failed tests
* German group says "all in all" its banks should do well
* Toughness, transparency key for tests success: analysts
* Asia stocks up as strong US earnings offset slowdown
fears
By Vikram S.Subhedar
HONG KONG, July 23 (Reuters) - The euro slipped on Friday
after a Spanish newspaper reported some of the country's 18
savings banks had failed stress tests to see how strong they
would be if economic conditions worsened, highlighting
nervousness ahead of the release of Europe-wide test results
later in the day.
Though some of Spain's smaller banks or "cajas" had been
widely expected to fail the tests, European stock futures
<STXEc1> eased and Asian stock markets gave up some of their
strong early gains after the report in the El Pais paper.
[]
It did not identify the savings banks. Analysts had
expected no problems at Spain's big banks. []
Separately, Manfred Weber, the head of the Association of
German Banks, told local radio that he was confident that
German banks "all in all" would perform well in the tests.
The euro <EUR=> slipped 0.2 percent against the dollar to
around $1.2868 after the El Pais report, but remained close to
its late U.S. levels as traders awaited more comprehensive
results from the rest of Europe.
Worries about the health of Europe's banks have weighed on
the single currency and global stock markets, and driven up the
region's funding costs, since Greece's debt crisis triggered
fears that the euro zone could unravel.
The euro had jumped more than 1 percent against the dollar
on Thursday and European bank stocks rose across the board in a
sign that investors are starting to hope the worst is behind
the region's financial industry. []
But a lack of details about the terms of the tests and
earlier divisions among European Union members over how much
information will be made public has made investors wonder if
the assessments would be tough or transparent enough.
[]
Ironically, word of a few small failures in fiscally weaker
countries such as Portugal or Spain could actually boost
confidence in the vigorousness of the testing process. The
official results are expected around 1600 GMT, though some
sources said they could be released earlier.
"There is obviously the risk that if too many banks pass
and do so with a comfortable margin, the test may be judged as
too easy to have actually been informative about the strength
of the banking system," Goldman Sachs analyst Nick Kojucharov
wrote in a note.
Analysts say the most concern is over how the banks'
holdings of European sovereign debt will be treated and whether
the assumed "haircuts" or expected losses on the debt are
stringent enough.
"It is very important that banks demonstrate that they have
nothing to hide," said Nomura analyst Peter Westaway in a note.
A positive response to the test results would like spur
global investors to return to riskier assets, even though the
euro zone's deep-rooted debt problems will take years to
resolve.
However, even if most banks pass the test, analysts
estimate lenders in the region will need to raise as much as 90
billion euros in fresh capital as they recover from the credit
crisis and comply with new regulations, which could blunt any
initial gains.
STOCK MARKETS SUPPORTED BY STRONG EARNINGS
Despite uncertainty ahead of the banks test results, Asian
stocks rose on Friday as strong earnings from U.S. economic
bellwethers such as Caterpillar tempered fears that the global
economic recovery may be stalling.
Asian stocks outside Japan <.MIAPJ0000PUS> pared some gains
after the Spanish report but were still up 1.2 percent by 0625
GMT. They looked set to gain more than 2 percent gain on the
week, with Asia ex-Japan equity funds seeing strong inflows.
Japan's Nikkei <> also came off its early highs but
ended up 2.3 percent, snapping a five-day losing streak.
Major U.S. share indexes rose as much as 2.7 percent
overnight as robust quarterly results from construction and
mining equipment maker Caterpillar <CAT.N>, 3M <MMM.N> and
other U.S. multinationals suggested the global economy may be
on stronger footing than previously thought. []
A string of weak U.S. economic data in recent weeks and
worries that Europe's debt crisis could derail its already
fragile recovery have put heavy pressure on markets, but there
are signs that investors are slowly returning to riskier
assets.
Emerging markets equity funds retained some of their
momentum from the previous week, with Asia ex-Japan Equity
Funds taking in over $800 million for the second week running,
according to data from fund-tracking firm EPFR Global.
[]
Crude oil futures <CLc1> slipped below $79 a barrel after
jumping to 11-week highs overnight as a potential storm
threatened production in the Gulf of Mexico.
Shanghai copper <SCFc3> also rose, chasing London which
climbed to near two-month peaks, spurred by a weaker dollar and
an unexpected surge in the euro zone's private sector growth.
(Editing by Kim Coghill)
