By Tamawa Desai
LONDON, Jan 28 (Reuters) - Global equities rallied on
Thursday as U.S. President Barack Obama focused on job creation
rather than any concrete details of banking reforms which have
spooked financial markets.
Obama's proposals last week on restricting risk-taking and
potentially breaking up the banking sector had fuelled a global
market sell-off but his State of the Union speech was pinned
chiefly to spurring job creation.
That boosted demand for riskier assets, pulling the dollar
back off five-month highs hit earlier after the U.S. Federal
Reserve concluded a policy meeting. World stocks as measured by
MSCI <.MIWD00000PUS> rose 0.6 percent.
European shares <> gained 1.3 percent, bouncing back
from a sharp one-week slide, and following gains in Asia and on
Wall Street overnight.
Banks, beaten down over the past week by worries over the
White House's plan to curb risk-taking by financial
institutions, were among the top gainers in Europe.
"The violence of the sell-off has been surprising, investors
panicked," said Jacques Henry, analyst at Louis Capital Markets,
in Paris. "But I don't think this has been a change in trend.
Macro data is pointing in the other direction."
The U.S. Federal Reserve kept interest rates steady as
expected and gave a cautiously upbeat view on the economy, also
buoying shares, though there was surprise as one policymaker
dissented on language on keeping rates low for an extended time.
The U.S. Treasury yield curve flattened as the difference
between the short- and long-term yields narrowed and the dollar
rallied to 5-month highs against a basket of currencies after
Kansas City Fed President Thomas Hoenig's dissent raised
speculation of higher U.S. interest rates.
EURO PRESSURED
A Reuters poll taken shortly after the Fed's decision showed
nine of the 15 primary dealers responding said they expected the
Fed to start raising interest rates this year. []
The dollar index, which tracks the performance of the
greenback versus a basket of six other major currencies, was
down 0.1 percent at 78.568 <.DXY>. It rose as far as 79.066, its
highest since August last year.
The euro <EUR=> remained under pressure on concerns over the
heavily indebted smaller euro zone countries such as Greece and
Portugal.
On Wednesday, the premium to hold Greek debt rather than
benchmark German bonds soared to its highest since the euro was
launched more than a decade ago.
"Sentiment definitely remains negative for the euro because
of the Greece problem," said Lutz Karpowitz, currency strategist
at Commerzbank in Frankfurt.
"I thought the Greece story would eventually die down, but
that doesn't seem to be the cause, and there are more countries
in the pipeline (who are facing debt problems)."
Ratings firm Standard & Poor's said on Thursday it would
look beyond Portugal's 2010 budget to the country's updated EU
stability plan before deciding on a potential downgrade. It
changed the outlook on Portugal's rating to negative last month.
Markets will keep an eye as Fed chief Ben Bernanke's
nomination for a second term faces a decisive day in the Senate
on Thursday when his confirmation vote looks set to go ahead.
Bernanke had been widely seen as getting the support he
needs but a recent surge of public anger at big banks and the
way U.S. regulators rescued them from the financial crisis has
meant the vote could be a lot closer than expected.
His terms runs out on Sunday.
U.S. crude oil futures rose towards $74 a barrel, rebounding
from six-week lows [], while gold <XAU=> firmed after the
dollar eased.
(Additional reporting by Blaise Robinson and Naomi Tajitsu;
editing by Patrick Graham)
