Dollar Gains on Fed Outlook as Asia Stocks, Futures, Euro Drop

By Yoshiaki Nohara and Katrina Nicholas
Dec. 17 (Bloomberg) -- The dollar strengthened, climbing to a three-month high against the euro after the Federal Reserve said the U.S. economy is improving. Asian stocks and U.S. index futures declined on expectations that central banks will begin to raise interest rates next year.
The U.S. currency gained against 15 out of 16 of its most- traded counterparts, advancing 0.9 percent against the euro and
0.4 percent versus the yen as of 5:10 p.m. in Tokyo. The euro fell after Standard & Poor’s cut Greece’s credit rating. The MSCI Asia Pacific Index dropped 0.9 percent while futures on the Standard & Poor’s 500 Index lost 0.4 percent. Europe’s Dow Jones Stoxx 600 fell 0.6 percent to 248.92 at 8:10 a.m. in London.
While repeating its vow to keep interest rates "extremely low," policy makers said employment and consumer spending trends show the economy is strengthening. The Fed said that most of its special liquidity facilities will expire on Feb. 1, raising expectations that the central bank will increase the target rate for overnight loans between banks from zero to 0.25 percent.
"The Fed’s statement indicated jobs data won’t get worse from now on, providing some level of confidence for the U.S.
dollar," said Susumu Kato, chief economist at Calyon Securities in Tokyo. "With these downgrades in Europe coming out, emerging markets are more susceptible than developed ones to risk factors," reflecting a drop in Asian stocks.
The dollar rose to as high as $1.4536 against the euro, the strongest since Sept. 8, and to 90.26 yen after the Fed meeting.

Capital Gains Stimulus

The biggest stock market advance in seven decades is reducing the need for additional government stimulus measures, according to former Federal Reserve Chairman Alan Greenspan.
The Standard & Poor’s 500 Index’s 64 percent jump since March made Americans richer by restoring $5.4 trillion to U.S.
equities and helped spur a 1.3 percent increase in retail sales last month, data compiled by Bloomberg and the Commerce Department show.
"The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that’s occurred since early March," Greenspan, 83, said in a telephone interview yesterday from Washington. "Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent."
Increasing spending beyond the $11.6 trillion already pledged may also be unnecessary because higher stocks will help boost profits and make loans easier to come by, Greenspan said.

Euro Weakens

Europe’s single currency weakened for a third day after S&P joined Fitch Ratings in downgrading Greece, which has the widest budget deficit in the European Union. S&P lowered the ranking by one level to BBB+ from A-, matching Fitch’s cut on Dec. 8. Greek Prime Minister George Papandreou pledged two days ago to provide "radical" measures to fix the budget.
Greek 10-year government bonds opened lower, sending the yield up 7 basis points to 5.58 percent as of 7:33 a.m. in London. The two-year note yield increased 2 basis points to 3.19 percent.
Financial stocks led Asian shares lower. Westpac Banking Corp. dropped 1 percent in Sydney and China Overseas Land & Investment Ltd. lost 2 percent in Hong Kong.
China’s stocks fell for a third day, the longest losing streak since September, on concern a flood of new share sales will divert funds from existing equities and faster global economic growth will spur interest-rate increases.
The Shanghai Composite Index fell 76.13, or 2.3 percent, to 3,179.08. The gauge has jumped 75 percent this year on higher government spending and a credit boom.

‘Sharp Corrections’

The Hang Seng Index fell 1 percent after the Hong Kong Monetary Authority cited the risk of "sharp corrections" in asset prices following this year’s 49 percent rally. An outflow of funds may bring "volatilities in the real economy," the central bank said in a report today.
Esprit Holdings Ltd. dived 5 percent to HKD$47.40. Hong Kong’s biggest publicly-traded clothier agreed to pay HK$3.88 billion to buy the shares it doesn’t already own in a textile venture with China Resources Enterprise Ltd.
South Korean banks fell for a second day after the financial regulator said yesterday it will limit loan-to-deposit ratios to curb excessive lending. KB Financial Group Inc.
declined 2.3 percent, while Korea Exchange Bank lost 2.4 percent.
The Kospi index dropped 1 percent.
The won fell 1.1 percent to 1,177.85 in Seoul, according to data compiled by Bloomberg. Overseas investors sold $40.7 million more Korean shares than they bought yesterday. They’ve pumped almost $24 billion into local equities this year, contributing to a 7.6 percent advance in the won.

Treasuries Climb

Treasuries rose, pushing 10-year notes to their biggest gain in more than a week. Ten-year note yields fell two basis points to 3.58 percent, according to data compiled by Bloomberg.
The 3.375 percent security due in November 2019 rose 1/8, or
$1.25 per $1,000 face amount, to 98 9/32.
Asia is leading the world’s emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates. China, South Korea, Taiwan, Hong Kong and 10 Southeast Asia economies may expand 6.8 percent in 2010 from 4.2 percent this year as the global recovery spurs demand for the region’s goods, the Asian Development Bank said on Dec. 15.
Markit Group Ltd.’s iTraxx indexes of Asia-Pacific credit- default swaps fell, signaling declining concern about the ability of companies and governments to pay their debt. The London-based data provider’s risk benchmarks for Asia, Japan and Australia debt last fell together on Dec. 14, according to CMA DataVision prices in New York. That’s when Dubai said it got $10 billion in aid from Abu Dhabi to help state-owned Dubai World meet obligations.

Commodities Fall

Gold for immediate delivery reversed gains, dropping as much as 0.7 percent to $1,129.68 an ounce as the dollar strengthened to a three-month high against the euro. The metal traded at $1,131.10 in Asia. Earlier it climbed as much as 0.4 percent.
Copper for delivery in three months on the London Metal Exchange tumbled as much as 1 percent to $6,970.25 a metric ton before trading at $6,985.
Oil fell in New York as the dollar strengthened against the euro, paring gains made yesterday after a government report showed a decline in fuel supplies in the U.S.
Crude oil for January delivery declined as much as 50 cents, or 0.7 percent, to $72.16 a barrel in electronic trading on the New York Mercantile Exchange. It was at $72.28 a barrel in Asia.