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Euro climbs to a 2 and a half year high

Thursday, March 13 11:48:17

The euro hit a new 2-1/2 year high against the dollar today as concerns over Chinese growth and political tensions in Ukraine took the fizz out of an attempted rebound in riskier assets.

The euro reached $1.3967 and looked set to test psychological resistance at a $1.40, in a possible sign that the currency is regaining safe-haven status following the currency bloc's prolonged sovereign debt crisis.

The euro zone's economic recovery seems to be picking up steam even as the European Central Bank resists pressure to ease policy further to counter deflation risks.

"The policy messages and data support the euro and we think that will allow it to continue to push higher from here," said Ian Stannard, a strategist at Morgan Stanley in London.

More traditional safe-havens also strengthened, with the Swiss franc extending gains against the dollar to 0.87095 francs - its strongest since late 2011. The Japanese yen also firmed.

Stock markets in Europe edged higher but remained pinned near one-month lows, with a 0.1 percent rise in the pan-European FTSEurofirst 300 barely recouping any of the 1.1 percent drop in the previous session.

The move echoed trading in Asia, where MSCI's broadest index of Asia-Pacific shares outside Japan managed to rise 0.5 percent, clawing back half the previous day's losses, despite concerns over Chinese growth that limited gains.

Soft Chinese data dented many markets. Japan's Nikkei slipped 0.1 percent, erasing gains made after Japanese machinery orders beat expectations, while South Korean shares also lost most of their earlier gains.

China's industrial output growth came in below forecasts for the combined January/February period, with retail sales also weaker than expected, stoking worries that growth could slow as Beijing pushes for economic reforms.

"The China economy is slowing quite sharply, in our view... (although) the lack of inflation and slowing growth does open the door for policy easing," Gerard Lane, equity strategist at Shore Capital, said in a note.

The MSCI All-Country World index edged up 0.2 percent, not far from an eight-day low hit on Wednesday, while U.S. futures also pointed to a slightly higher open.

A major victim of concerns over China, copper dropped 0.3 percent to $6,485.50 a tonne, a day after it hit a four-year low at $6376.25.

After a tumble in copper of around 7.5 percent so far this month, investors are worried about a possible unravelling of Chinese loan deals using the metal - whose many industrial uses make it sensitive to global economic health - as collateral.

Also providing a boost to safe haven assets was the ongoing situation in Ukraine, as the diplomatic stalemate between Russia and the West over Crimea continued.

Gold hit a six-month high of $1,374.85, while U.S. Treasuries have erased all the losses made following last week's strong payrolls data. The benchmark 10-year yield was 2.74 percent on Thursday versus its six-week high of 2.82 percent hit last Friday. (Reuters)