(Recasts with PPI)
By Natsuko Waki
LONDON, Feb 26 (Reuters) - World stocks inched lower from an
earlier three-week peak on Tuesday while government bond prices
fell after U.S. data showed January producer prices rose faster
than expected, fuelling inflation concerns.
U.S. producer prices jumped 1 percent in January, posting
the biggest 12-month gain in more than 26 years, due to rising
energy costs.
Inflation concerns could slow the pace of interest rate cuts
by the Federal Reserve and other central banks keen to limit the
effects of the credit crunch on the real economy.
Interest rate futures have trimmed the chance for a March
U.S. rate cut to 82 percent.
"It is a bit troubling because this release indicates clear
pipeline inflation pressures. That could limit the Fed easing to
counteract the credit tightening," said Matthew Moore, economic
strategist at Bank of America Securities in New York.
U.S. stock futures erased earlier losses to stand down 0.4
percent <SPc1>, indicating a weaker open on Wall Street later.
The FTSEurofirst 300 index <> eroded early gains to
stand up 0.6 percent while the MSCI main world equity index
<.MIWD00000PUS> was up 0.4 percent, after hitting its highest
level since early February earlier in the day.
Benchmark U.S. 10-year Treasury prices fell 3/32 in price to
yield 3.92 percent, compared with 3.90 percent shortly before
the data. Euro zone government bond prices also fell, with the
March Bund future <FGBLH8> hitting session lows.
OPTIMISM
Earlier stocks were bolstered by upbeat results from
Standard Chartered <STAN.L> and optimism on U.S. bond insurers
which brightened investor morale.
Asia-focused bank Stanchart reported a 27 percent rise in
annual profit and said wholesale banking had a record January,
easing concerns about the health of the banking sector hit by
the six-month-old credit crisis.
Also helping sentiment, Standard & Poor's removed on Monday
its threat to downgrade insurer MBIA <MBI.N>. A rescue plan for
rival Ambac Financial <ABK.N> is set to be announced soon.
Investors have been spooked by the threat of credit
downgrades of these "monoline" insurers due to their exposure to
U.S. subprime mortgages.
Downgrades of the monolines, which provide cover against
defaults in securitised debt, could trigger a wave of forced
selling in bonds and lead to more losses by banks.
Stanchart shares were 7 percent higher.
The iTraxx Crossover index <ITCRS5EA=GFI>, most-widely
watched indicator of European credit market sentiment, tightened
to 535 basis points. The index widened to record levels last
week due to concerns about forced debt selling.
The euro rose to a three-week high of $1.4888 <EUR=> after
the German Ifo corporate sentiment survey headline index, based
on a monthly poll of around 7,000 firms, unexpectedly rose in
February. Interest rate futures trimmed expectations for a euro
zone rate cut by end-June to 1-in-4 from 1-in-3 before the data.
INFLATION CONCERNS
U.S. light crude <CLc1> fell 0.4 percent to $98.07 a barrel
as expectations rose for higher crude stocks. Gold <XAU=> fell
to $937.40 an ounce after the U.S. Treasury said it would
support gold sales by the International Monetary Fund, which
holds more than 3,000 tonnes of bullion.
Platinum <XPT=> also tracked gold lower.
A recent surge in commodity prices has fanned inflation
concerns. A February survey by the Confederation of British
Industry showed retailers expect to ramp up prices at the
sharpest rate in more than a decade.
"Inflation expectations remain critical and any significant
deterioration on that front would be a trigger for financial
market volatility," UBS said in a note to clients.
"With market sentiment highly dependent on further Fed
easing, upward inflation pressure would certainly put the Fed on
the defensive."
Emerging sovereign spreads <11EMJ> tightened 2 basis points
while emerging stocks <.MSCIEF> rose 0.6 percent.
(Editing by Gerrard Raven)
