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Latest update : 2011-08-09

US stocks were up more than 2.0 percent in mid-morning trading Tuesday, while European shares also bounced back 0.2 percent. Investors are now awaiting the policy statement from the US Federal Reserve later in the session.

REUTERS - World stocks pulled back from a 10-day rout on Tuesday as Wall Street put a brake on losses for the time being, with investors turning their attention to a meeting of the U.S. Federal Reserve.

Even so, safe-haven bets were still favored as gold hit another record and investors pushed into the Swiss franc.

US Economy

Fears of a new global economic downturn, reinforced by a downgrade of the United States’ credit rating last Friday and the debt crisis in the euro zone, had sent world shares down as much as 20 percent from May’s peak.

“Investors are looking for stability. They didn’t get it from the government, so the only place they can turn is the Fed,” said Cort Gwon, chief strategist at HudsonView Capital Management in New York.

“If there’s no indication of help, selling could come back.”

MSCI’s all-country world index recovered from early losses and was up 0.9 percent. The earlier drop put it on track for a 10th straight day of declines, which is extremely rare. The record is 13, back in the 1990s.

Investor focus was on the Fed meeting, with a statement due later in the day. Investors will look for hints on how the central bank may react to the market meltdown and offer support for the struggling economy.

While the Fed is not expected to debut any massive new program to help asset prices, investors may return to selling if there is no indication that help is on the way.

It is unclear, however, what the Fed’s options are, with interest rates already near zero and the central bank’s latest round of bond purchases having failed to stimulate credit demand.

U.S. stocks were up more than 2.0 percent at mid-morning and European shares also bounced to gain 0.2 percent.

U.S. Treasuries, which soared on Monday, gave back some of those gains in active trading.

“There’s so much volatility out there that both up days and down days are viewed as overdone,” said Gwon.

At 11 a.m. EDT (1500 GMT), the Dow Jones industrial average was up 210.02 points, or 1.94 percent, at 11,019.87. The Standard & Poor’s 500 Index gained 27.70 points, or 2.47 percent, at 1,147.16. The Nasdaq Composite Index was up 74.45 points, or 3.16 percent, at 2,432.14.

Safety first

Higher-than-expected inflation data from China added to concerns about the global economy. The country’s industrial output also grew at a slower pace in July, with the central bank trying to keep prices in check without dragging down the economy.

A Reuters poll found the United States faces one-in-four odds of slipping back into recession, and a weaker economic outlook is raising the likelihood the Federal Reserve will soon do more to boost growth.

The 10-year Treasury note fell 21/32, its yield rising to 2.39 percent, erasing about 1/3 of the previous day’s gain and a smaller portion of the week’s advance.

The 30-year bond last traded down 29/32 yielding 3.70 percent, up 4 basis points from late Monday. It touched 3.75 percent in overseas trading and hovered near its lowest levels since Sept. 2010.

Major holders of US debt

Gold hit a record $1,778 an ounce in its biggest three-day rally since the financial crisis in late 2008. It gained more than 3 percent on Monday.

The Swiss franc surged to record highs for the third day in a row against the euro and the U.S. dollar.

The euro dropped to its lowest on record at 1.0475 Swiss francs on trading platform EBS. It was last at 1.0528 in volatile trade, down 1.7 percent for the day.

The franc also rose to an all-time high versus the dollar of 0.73592 on EBS before easing to 0.7394, with the dollar down 2.1 percent.

The Japanese yen, which also tends to benefit in times of market stress, breached 77 yen per dollar, above levels that triggered official intervention from Tokyo last week.


Date created : 2011-08-09


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