Markets settle down ahead of payrolls figures

By Pan Pylas

Associated Press

Published: Thursday, Jan. 6 2011 8:09 a.m. MST

FILE - In this Dec. 15, 2010 file photo, Jesse Paloger holds up a sign while standing on Wall Street as he hopes to find a job, in New York. A survey from payroll processor ADP found that private companies added 297,000 jobs last month, far above the 100,000 economists expected. The report is the first chance for investors to see how strong the job market was in December.

Mark Lennihan, File, Associated Press

Enlarge photo»

LONDON — Upward momentum in global stock markets came to a halt Thursday after slightly disappointing weekly U.S. jobless claims figures reined in enthusiasm generated by a forecast-busting survey the previous day.

By mid-afternoon London time, the FTSE 100 index of leading British shares was up 22.85 points, or 0.4 percent, at 6,066.71 while Germany's DAX rose 72.99 points, or 1.1 percent, to 7,012.81. The CAC-40 in France was 26.26 points, or 0.7 percent, higher at 3,930.87.

In the U.S., the Dow Jones industrial average was down around 4 points at 11,719 soon after the open while the broader Standard & Poor's 500 index fell a point to 1,275.63.

Mounting hopes over the pace of the U.S. economic recovery following exceptionally strong jobs data lifted sentiment around the world Wednesday and into Thursday, sending stocks and the dollar sharply higher.

However, figures showing a bigger than expected 18,000 increase in weekly jobless claims to 409,000 stoked some concerns that the optimism surrounding Friday's nonfarm payrolls report for December may have been overdone.

Expectations for the payrolls report have swelled following figures Wednesday from ADP showing that a massive 297,000 private sector jobs were added in December. That was up on November's 92,000 and significantly ahead of market expectations for a 100,000 increase.

Analysts have been quick to raise their predictions for Friday's government report, and the expectation now is that around 175,000 jobs, both private and public, were added over the month, up from 140,000 before the ADP data.

The scale of the upward revisions have been so great, that there's now plenty of room for disappointment, said Alan Ruskin, an analyst at Deutsche Bank.

Ruskin said "sustained damage" to the improved appetite for risk in the markets could emerge if private payrolls only increase by 125,000 or less.

Overall though, the consensus is that more jobs in the U.S. is obviously good news for stocks because it signifies that the world's largest economy is growing faster than before.

However, it could pose problems because it may also prompt the Federal Reserve to start withdrawing its monetary stimulus sooner than previously expected. As well as cutting its key interest rate to near zero percent, the Fed has authorized two massive money injections into the U.S. economy and is currently in the middle of a $600 billion effort.

Those tentative concerns that the Fed may soon alter course seemed to weigh on stocks in the immediate aftermath of the U.S. jobs data but the optimists soon took charge — after all, higher growth means bigger profits and earnings.

The dollar had no such conflict as Treasury yields spiked sharply higher. That means that holding dollars is more attractive because the returns are potentially greater.

"The ADP report provided yet another clear signal that U.S. labor market conditions are improving, helping to further reassure investors over the sustainability of the U.S. economic recovery," said Lee Hardman, a currency economist at the Bank of Tokyo-Mitsubishi UFJ.

The dollar remained buoyant Thursday, trading only 0.2 percent lower on the day at 83.23 yen. However, it has gained further ground against the euro, which was down 0.3 percent at $1.3110.

With the markets so fixated on developments in the U.S., developments in Europe's debt crisis are taking a backseat — to the likely relief of the eurozone's policymakers.

Perhaps, the debt crisis' move away from the spotlight has helped a run of government bond auctions run smoothly. France easily sold €9 billion bonds Thursday, following on from successful auctions Wednesday from Germany and Portugal.

The French Treasury reported that it sold €8.975 billion through auctions of different-dated debt and that the yield on the benchmark ten-year issue rose to 3.36 percent from 2.87 percent at the previous auction — the increase in the yield was in line with increasing yields in the secondary markets since November for reasons including the debt crisis.

Earlier in Asia, Japanese stocks jumped to a nearly 8-month high Thursday on the weaker yen — a key worry in Japan in recent months has been the potentially negative impact of the higher yen on the country's major exporters.

Japan's Nikkei 225 stock average, Asia's largest market, rose 1.4 percent to 10,529.76, its highest close since May 13

Gains elsewhere in Asia lagged Tokyo's. Hong Kong's Hang Seng index was up a marginal 0.1 percent to 23,786.30. South Korea's Kospi was down 0.2 percent to 2,077.61, while China's Shanghai Composite index lost 0.5 percent to 2,824.20.

Rising expectations over the pace of the U.S. recovery helped oil prices move back above $90 a barrel Wednesday.

Profit-taking has been evident Thursday though, with benchmark oil for February delivery down 45 cents at $89.85 cents in electronic trading on the New York Mercantile Exchange.

AP Business Writer Kelly Olsen in Seoul contributed to this report.

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