GLOBAL MARKETS-Growth outlook lifts shares, dollar stalls after Fed taper rise

1500 GMT (1000 ET) the S&P 500 was up 0.1 percent at
Monday, 11 Nov 2013 | 10:34 AM ET


* Fed taper speculation supports dollar near 2-week high

* Shares lifted by brighter U.S. growth outlook

* Wall Street creeps up in early deals

* Gold slides to 3-1/2 week low under $1,280 an ounce

* Oil rises toward $106 after China data, no Iran deal

LONDON, Nov 11 (Reuters) - Signs of a solid U.S. recovery boosted world equities on Monday although concern that this may encourage the Federal Reserve to reduce its economic stimulus put pressure on emerging markets. Surprisingly strong U.S. jobs data on Friday brought forward expectations for when the Fed could start tapering its stimulus, lifting Treasury bond yields and the dollar without curtailing demand for shares on Wall St or in other major markets. U.S. stocks on the S&P 500 and Dow Jones Industrial Average saw a steady start to the week as trading resumed although activity was crimped by the Veterans' Day holiday, which also meant U.S. bond markets were closed. "I think the reaction in the markets suggests the probability of December tapering has increased," said Philip Marey, a U.S. focused economist at Rabobank. "If you look at the non-farm payrolls figures for the last couple of months, it is exactly the kind of growth the Fed was looking for. But I still think December would be too early." 1772.81 points and the Dow Jones Industrial was hovering at 15789.40 points. Fed officials, including Chairman Ben Bernanke, have sounded cautious about the prospect for early tapering since the jobs data, though many investors are waiting for Bernanke's nominated successor, Janet Yellen, to give her views before the U.S. Senate on Thursday. "Janet Yellen is going up to the Senate and they are going to ask her about the taper. She is not going to say 'I'm not telling you'," Alastair Winter, chief economist at brokerage Daniel Stewart, said. Meanwhile the expectations for U.S. growth helped lift European shares by 0.2 percent and off one-week lows during a subdued session. Portuguese stocks also contributed with a jump of 1 percent after rating agency Moody's took Lisbon off downgrade watch. Portuguese bonds outperformed too amid a broad but low-key euro zone rally.

EMERGING PAIN Earlier the recovery hopes had boosted Japan's Nikkei by a hefty 1.3 percent, lifting it from one-month lows. MSCI's global barometer of world shares added 0.3 percent though it was still down 1.6 percent from the near six-year highs touched at the end of October when it seemed the Fed might not taper until well into next year. But Asian shares reflected the concern in emerging markets that an earlier cutback in Fed stimulus and higher bond rates would attract capital back toward the United States, a worry that sparked a sharp sell-off earlier in the year. MSCI's emerging market index shed 0.2 percent, hitting its lowest point since Oct. 1, while Asia-Pacific shares outside Japan extended Friday's 1 percent drop, with another 0.2 percent dip. Sentiment in Asia was also hit by data showing a sharp rise in China's inflation rate to an eight-month high, which fanned worries that policy could tighten just when factory output and export data suggest the world's No. 2 economy may be stabilising after a period of slower growth. Emerging Asian currencies also came under pressure on the capital outflow fears, pushing the Indian rupee down 1.3 percent to 63.281 per dollar and the Indonesian rupiah down 1 percent to 11,551 per dollar, a one-month low.

DOLLAR REBOUND STALLS The dollar retraced some of its gains against the world's major currencies despite the talk of a more imminent tapering but was well supported just below the two-month high set on Friday after the data. The change in expectations has been reflected in the U.S. Treasury market where yields on the 10-year benchmark jumped to 2.75 percent on Friday, from 2.60 percent. These now offer a pick-up over equivalent European and Japanese bonds. "The dollar has come off slightly, but the defining factor is the rise in U.S. yields," said Jeremy Stretch, head of currency strategy at CIBC World Markets. With the greenback taking a breather, the euro managed to claw back up to $1.3400 as U.S. trading gathered pace, having plumbed a two-month trough of $1.3295 on Thursday when the European Central Bank surprised the market by cutting its main rate to a record low 0.25 percent. The euro market is focused on GDP data later this week for the 17-nation bloc for hints about the region's economic recovery prospects after recent positive numbers. In commodity markets, gold was taking a big hit from the tapering speculation, sliding to a three-and-a-half week low just under $1,280 an ounce to add to Friday's 1.5 percent decline. "Strength in bond yields and the dollar has created some weakness for gold," said Saxo Bank senior manager Ole Hansen. Brent crude oil rose 75 cents a barrel to around $105.87 after Iran and six world powers failed to clinch a deal on Tehran's nuclear programme, and after Chinese data pointed to a rise in fuel demand in the world's biggest energy consuming country.

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