By Jeremy Gaunt, European Investment Correspondent
LONDON, March 12 (Reuters) - Uncertainty about the health of
the financial sector on Wednesday erased some of the euphoria
over central bank moves to ease credit market stress, although
European and Asian stocks put in solid gains.
Wall Street, however, looked set to open weaker after large
rises on Tuesday and the dollar weakened against major
currencies with the euro heading towards a new high.
Oil fell back a bit from its near-$110 a barrel high.
Deep concerns among investors about the threat of another
round of last year's credit crisis were at least temporarily
assuaged on Tuesday when the U.S. Federal Reserve said it would
allow financial firms to swap securities backed by home
mortgages for some $200 billion in Treasury bonds.
This was supported by other liquidity-inducing efforts by
the European Central Bank, Bank of Canada, Bank of England and
Swiss National Bank.
The moves spurred the S&P 500 <.SPX> index of leading U.S.
stocks to its biggest daily gain since October 2005 with a 3.71
percent rise, a mood that continued to spill over into Asia and
Europe on Wednesday.
"The central banks coordinating to inject liquidity to try
to ease fears in the credit markets and make sure (the stress)
doesn't translate through to the real economy is good for the
economy," said Edmund Shing, strategist at BNP Paribas in Paris.
Europe's FTSEurofirst 300 <> index was up 1.2 percent,
having gained the same amount on Tuesday. Earlier, Asian stocks,
as measured by MSCI <.MIAPJ0000PUS>, rose 1.7 percent.
Despite the immediate euphoria, however, investors remain
worried about world credit markets, where trading in a broad
range of securities including some euro zone government bonds
and U.S. municipal bonds had seized up over the past week.
Credit Suisse, for example, said it did not believe the
problems would go away. "We expect to see more hedge fund
collapses, more forced sales and more extreme price movements in
the near term," it said in a note.
DOLLAR WEAK, OIL STEADY
The dollar, which has been battered by the deteriorating
U.S. economy and prospects of lower U.S. interest rates, fell
back towards record lows versus the euro.
"It's a bit of a reality check. The Fed's action obviously
is welcome but it doesn't really fix the economy," said Martin
McMahon, FX strategist at Credit Suisse in Zurich.
The dollar fell more than 1 percent against a basket of six
major currencies to 72.532, edging towards a record low of
72.462 set at the end of last week <.DXY>.
It also eased 1 percent to 102.36 yen <JPY=>. The euro was
up nearly 1 percent at $1.5478 <EUR=>.
Oil prices were steady after hitting a record near $110
overnight, doing little to ease concerns about the world
economy. U.S. crude for April delivery <CLc1> was down 13 cents
at $108.67 a barrel, not far from below its record $109.72.
The June Bund future <FGBLM8> was 4 ticks up at 117.50.
Two-year yields <EU2YT=RR> were 3.9 basis points higher at
3.3359 percent, while 10-year yields <EU10YT=RR> were down 1.5
basis points at 3.781 percent.
(Editing by Ruth Pitchford)
