The pan-European FTSEurofirst 300 was down around 1 percent, hitting a lifetime low. Earlier, Japan’s Nikkei ended down just shy of a 26-year.

MSCI’s main world stock index was down 0.2 percent on the day, after having tumbled 4.9 percent on Monday, its worst performance since early December.

Global stocks have been pummelled this year by a left-right combination of poor economic news and continuing travails within banks and the global financial system in general.

The MSCI index is down more than 22 percent on the year so far and has lost around 58 percent of its value since hitting an all-time high in late 2007.

The Nikkei ended down 0.7 percent. The benchmark hovered just short of a 26-year low amid worries about the U.S. financial system. The broader Topix slipped 1.1 percent to 726.80, its lowest close since December 1983.

Gargantuan losses on world stock markets, however, are piquing the interest of investors who see value appearing and the potential for at least a short-term reversal.

“Stocks do appear to be oversold at current levels, meaning there is a possibility for a near-term and significant rally,” Bob Doll, chief investment officer for global equities at BlackRock, said in a note.

But he added: “The downside risks remain troubling.”

WAIT AND SEE

The dollar weakened as traders bought the euro and other relatively higher-yielding currencies after the Reserve Bank of Australia unexpectedly left interest rates on hold.

But activity was subdued as investors took a wait-and-see stance over the financial system and deepening global recession.

The dollar index, a gauge of its strength against a basket of six other major currencies, hit a three-year high in overnight trade as investors sought shelter in the world’s most liquid currency. It was down 0.5 percent on Tuesday.

The euro rose 0.4 percent from late U.S. trade to $1.2629 , recovering losses suffered in the wake of European Union leaders’ rejection of a mass bailout for eastern Europe, which weighed on the single currency the previous day. Euro zone government bond yields pushed higher.

The interest rate-sensitive two-year Schatz yield was up 2 basis points at 1.227 percent. It remained within orbit of a euro lifetime low 1.15 percent struck on Feb. 18.

The 10-year Bund yield was up 3 basis points at 3.061 percent. Bond yields move inversely with prices.

REUTERS (March 3, 2009)

Asian stocks climbed nearly 4 percent on Monday on renewed hopes the U.S. automaker industry would be rescued, strengthening willingness to take risks and knocking the U.S. dollar to a two-month low against the euro.

Investors have been funnelling capital back to emerging Asia for the last few weeks and word the White House was considering using some of $700 billion meant to rescue financial institutions for the struggling car manufacturers extended the trend.

European stock index futures were also pointing to opening gains of at least 2 percent.

However, worsening U.S. economic data, a rapidly growing fiscal deficit and the likelihood the Federal Reserve will cut interest rates again this week all combined to weaken the dollar.

“The tide seems to have turned around in recent sessions, with bad U.S. economic news now rightfully hurting the U.S. dollar rather than helping it stronger,” said Nizam Idris, currency strategist with UBS in Singapore.

“Further commentary regarding any alternative solutions to the auto sector will be closely followed during the day, and hence be key to risk sentiment,” Idris said in a note.

Oil bounced back $1 to trade above $47 a barrel on signs that OPEC members might make a deep supply cut to boost prices when they meet later this week.

The MSCI index of Asia-Pacific stocks outside Japan rose 3.7 percent on the day and is up about 7 percent so far in December, trying to pull off its first monthly increase since April.

Japan and South Korea led the region in stock performance. The Nikkei share average rallied 5.2 percent, with Honda Motor Corp stock rose 8.5 percent, one of the biggest lifts to the Nikkei.

South Korea’s benchmark KOSPI share average was up 4.9 percent.

The risk of further declines based on earnings downgrades has been clearly outweighed by the cheapness of stocks at the moment. Toyota Motor Co stock is up 9.1 percent even after Japanese media reported the world’s top automaker is likely to further cut its earnings forecasts and report an operating loss of $1.1 billion in the October-March period.

Hong Kong’s Hang Seng index rose 3.1 percent, led by HSBC and China Mobile. China Construction Bank and Bank of China (Hong Kong) Ltd were the only stocks that fell.

“I am surprised that the equity market is still holding up so well in Asia. Mutual funds are probably putting their year end cash balance to work.” said Sean Darby, chief Asia Strategist at Nomura in Hong Kong, on the overall positive market movement.

In the bond market, the Asia excluding Japan benchmark iTRAXX investment-grade index tightened by 20 basis points, after widening sharply on Friday’s news of Senate’s rejection of auto bail out.

Asian benchmark dollar bonds have not kept pace with the rally in equity markets, trading near historically wide spreads, though the cost of insurance against corporate and sovereign debt default slipped as the environment for risk gradually improved.

The White House indicated last week it is open to using part of the bank bailout package for the Big Three car companies — Chrysler LLC, Ford Motor Co and General Motors Corp . A bill that would have provided $14 billion in loans for the firms failed in the Senate on Friday.

TOO EARLY FOR RECOVERY

With some equity valuations at distressed levels, some investors sitting on cash have begun to think about a recovery at some point in 2009. However, JPMorgan asset allocation strategists said it might be too early to let go of recession trades given the global economy is smack in the middle of the worst downturn since World War Two.

“There remains sufficient uncertainty about the timing of a recovery that it is quite easy for credit and equities to cheapen further, and bonds to rally more before we start the real recovery trade,” they said in a note. “We thus stay with a portfolio of recessions trades — long duration in global rates and defensive exposures in credit and equity markets.”

However, Nomura’s Darby said corporate bonds are already cheap, given how much they have sold off this year. For the time being, bond investors are not as worried about high returns as they are about staying safe, he said.

The yen was up slightly at 90.98 per dollar , having rallied to its strongest in 13 years on Friday at 88.10 after the U.S. auto bailout initially flopped.

The euro rose to highs around $1.3490 on electronic platform EBS, the highest in almost two months.

The rally in stocks sucked money out of the bond market, pushing up the yield on the benchmark 10-year U.S. Treasury note , which moves in the opposite direction of the price, to 2.59 percent from 2.58 percent late in New York on Friday.

Kevin Plumberg and Xi Chen

HONG KONG, Reuters

U.S. stocks fell sharply on Friday in response to a grim U.S. jobs report that sent bond prices higher in Europe and pushed the price of crude down to $42 a barrel as prospects for the world’s economies darkened.

European shares extended losses in afternoon trade as investors reeled at U.S. government data showing a loss of 533,000 jobs in November, the weakest performance in 34 years.

Oils and bank stocks led the decline in Europe, while oil and defense stocks pushed the Dow down in the United States.

The dollar fell to a seven-week low against the yen but rose against the euro as investors once again sought shelter in the U.S. currency.

“When you see such a shocking employment number, you realize the devastating effect that can have on household demand,” said Henk Potts, equity strategist at Barclays Stockbrokers in London.

Shortly after opening, the Dow Jones industrial average was down 67.30 points, or 0.80 percent, at 8,308.94. The Standard & Poor’s 500 Index was down 6.59 points, or 0.78 percent, at 838.63. The Nasdaq Composite Index  was down 10.73 points, or 0.74 percent, at 1,434.83.

The pan-European FTSEurofirst 300 index was down 3 percent at 797.26 points.

Euro zone government bond futures extended gains to a fresh session high, pushing the 10-year cash yield below 3 percent after the worse-than-expected U.S. jobs report.

The 10-year Bund yield fell to the session low of 2.988 percent, down 9 basis points on the day.

However, U.S. government debt prices fell after the dismal labor report in a sign investors are reluctant to buy government debt with yields at the lowest in over 50 years.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.62 percent. The 2-year U.S. Treasury note fell 3/32 in price to yield 0.86 percent.

“We’re already at (yield) levels we’ve never seen before. It’s just difficult to continue buying Treasuries at these prices,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

November’s job losses were the steepest since December 1974, when 602,000 jobs were shed, Labor Department data showed, and were much worse than forecast by analysts polled by Reuters who had predicted a reduction of 340,000 jobs.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.61 percent at 87.142. Against the yen, the dollar fell 0.01 percent at 92.16.

The euro fell 0.66 percent at $1.2686.

U.S. light sweet crude oil was off 54 cents at $43.13 a barrel, after earlier touching $42 at one point.

Many dealers and analysts expect oil to test the psychologically important $40 a barrel level fairly soon as evidence mounts of a significant decline in oil demand in all the major developed economies.

Spot gold prices fell $13.85 to $751.80 an ounce.

Asian shares edged higher overnight, with the MSCI index of Asian shares outside Japan  rose 0.2 percent, but trimmed gains after the U.S. employment report. The Nikkei average slightly lower, down 0.1 percent.

By Herbert Lash
NEW YORK, Dec 5 (Reuters)

Speaking to Thomson Reuters, Matthias Siller, an emerging markets investment strategist at Baring Asset Management said, “You can make a strong case that emerging markets are well-placed in any scenario going forward – many of them are enjoying a commodities boom and many of their companies are ridiculously cheap at current valuations.”

“As long as we’re seeing strong commodity prices, the implication is that the emerging markets are still growing. The supply constraints in commodities are here for at least several more years, so these stocks should continue to do well,” said Walter Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama, speaking to Bloomberg.

“The combined gross domestic product of the four BRIC [Brazil, Russia, India and China] nations made up 12% of global GDP last year”, says Profit Watch editor Manraaj Singh.

“That’s up from just 8% in 2000. That’s impressive enough, but these countries still have a long way to go. Goldman Sachs predicts that the BRIC economies, as a whole, could overtake the G7 countries by 2035. Most of us will be around to see that happen. The rapid rise of the BRICs has been fantastic news for early investors in those markets. In the past two years, shares in the BRIC nations have risen by 70% – and that’s after the recent declines. The average increase in emerging markets overall was 42%.”

Investors need to be aware of the risk posed by emerging markets investments, says Money Week editor Merryn Somerset Webb.

“In April, the Brazilian central bank hiked rates by 0.5% to 11.75%, and with growth strong, inflation back to 4.7% and inflation expectations rising steadily, rates may have to go higher than the 13% economists are penciling in.

“As the past year has shown, Brazil will not be immune to a likely relapse in global markets amid fears over the American and global economies – note that the Bovespa index is highly cyclical, with the energy and materials sectors comprising 60% of the index. There will probably be better long-term buying opportunities in the months ahead.”