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January 7, 2011 > Dollar surges after US jobs data, stocks stay down

Dollar surges after US jobs data, stocks stay down

By Pan Pylas, AP Business Writer

LONDON (AP), Jan 05 - A forecast-busting U.S. jobs survey sent the dollar surging Wednesday but stocks remained lower following a particularly strong run over recent weeks.

The reaction to the news from the ADP payrolls firm that the U.S. private sector added a massive 297,000 jobs during December - way up on November's 92,000 and significally ahead of market expectations for a 100,000 increase - was fairly muted in stock markets. Investors remained wary of staking out fresh positions ahead of Friday's official government jobs report.

In Europe, the FTSE 100 index of leading British shares was down 15.34 points, or 0.3 percent, at 5,998.53 while Germany's DAX fell 74.71 points, or 1.1 percent, to 6,900.64. The CAC-40 in France was 40.91 points, or 1 percent, lower at 3,875.12.

Wall Street was poised for a retreat at the open too - Dow futures were down 26 points, or 0.4 percent, at 11,593 while the broader Standard & Poor's 500 futures fell 4.5 points, or 0.4 percent, to 1,260.80.

Stocks generally lost their momentum Tuesday following a buoyant first trading day of the year in the wake of upbeat economic data from around the world, notably out of the U.S.

The state of the U.S. economy will likely to be the main talk in the markets for the remainder of the week, right up to Friday's nonfarm payrolls report for December - the data on jobs added or lost in the economy often set the stock market tone for a week or two after their release and the hope is that the recent improving economic signals are feeding through into jobs.

Though the ADP figures have not always been echoed in the government's figures, analysts said they do augur well for this Friday's nonfarm payrolls report. Ahead of the ADP figures, the consensus was that the Friday data would show that a total of 140,000 jobs were added during the month.

That's certainly been the reaction in currency markets, where the dollar enjoyed a bounce in the wake of the figures.

``The data is obviously very risk friendly, although the equity futures response has been small,'' said Alan Ruskin, an analyst at Deutsche Bank. ``The data is being taken as dollar positive.''

By mid-afternoon London time, the dollar was up 1.1 percent at 82.90 yen while the euro was 1 percent lower at $1.3178.

While the dollar has been enjoying strong support, the euro has been weighed down by a reminder that Europe's debt crisis is a long way from being resolved.

Though there was relief that debt-laden Portugal managed to raise euro500 million via the auction of six-month Treasury bills and that demand for the offering was relatively high at over euro1.3 billion, it won't have gone unnoticed that the country had to pay a whopping interest rate of just under 3.7 percent to get the necessary backing, way up on the 2 percent it had to pay in September.

The increase in the yield was anticipated as Portugal's market rates have gone up over the last few months as the European debt crisis ratcheted up again, with Ireland eventually joining Greece in having to be bailed out by its partners in the EU and the International Monetary Fund.

``This is a major hike in cost - 80 percent,'' said David Buik, markets analyst at BGC Partners.

The prevailing view in the markets is that Europe may be able to support Portugal but that a bailout of Spain would test the limits of the existing bailout fund, potentially putting the euro project itself in jeopardy if governments don't put up more cash. Spain accounts for around 10 percent of the eurozone economy, compared with the Greece, Ireland and Portugal, which account for around 2 percent each.

Later, after Wall Street opens for business, the main focus will be the December non-manufacturing survey from the Institute for Supply Management and in particular whether it echoes the bumper manufacturing release of earlier this week, which sent stocks flying on Monday.

Despite a run of positive U.S. economic data, the Federal Reserve is still maintaining its fairly cautious stance over the outlook.

The minutes to its December policy meeting - published Tuesday - showed that the vast majority of the rate-setting panel don't think that the recent improvement in US economic conditions was sufficient to warrant any change in the asset purchase program.

Earlier in Asia, China's benchmark Shanghai Composite Index declined 0.5 percent to 2,838.59, while Hong Kong's Hang Seng Index lost 0.4 percent to 23,757.82.

Elsewhere in Asia, Japan's Nikkei 225 stock average fluctuated after hitting a seven-month closing high Tuesday. It ended down 17.33 points, or 0.2 percent, at 10,380.77. South Korea's Kospi fell 0.1 percent to 2,082.55 and Australia's S&P/ASX 200 lost 0.6 percent to 4,714.90 as lower commodities prices hit resource-related shares.

Benchmark oil for February delivery fell 56 cents to $88.83 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $2.17 to settle at $89.38 a barrel Tuesday.

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