Central bank stimulus hopes lifts European shares

 

Europe's share markets advanced and the euro slipped on Tuesday as some investors positioned for the European Central Bank and the U.S. Federal Reserve to extend their monetary measures to stimulate economic growth.

 

Opinions remain divided on whether the ECB will lower interest rates. Only a narrow majority of 76 economists polled by Reuters last week forecast a 25 basis point cut in the main rate to 0.5% on Thursday. A separate survey of money market dealers showed they were evenly split on any move.

 

However, data at 0900 GMT is expected to show euro zone inflation falling further below the ECB's target. This would add to the case for a cut, which has been building all month as economic data points to a slowdown in business activity across the euro zone.

 

Sluggish U.S. economic data has also increased talk that the Fed, which starts a two-day policy meeting on Tuesday, could consider more stimulus rather than cutting back its current $85 billion a month bond buying programme.

 

"Expectations of further monetary stimulus from global central banks combined with indications that the pace of fiscal austerity may be eased in the euro-zone are encouraging the pick up in risk seeking behaviour," Lee Hardman, currency analyst at the Bank of Tokyo-Mitsubishi UFJ said in an note.

 

The pan-European FTSEurofirst 300 index, on course for its 11th straight monthly gain, was up 0.5 % at 1,208.50 points in early trading, taking its April rise to 1.6 %. London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX rose 0.3, 0.25 and 0.9 % respectively.

 

Europe's gains followed Monday's record close for the S&P 500 index on Wall Street and Tuesday's 1.1 % jump in MSCI's broadest index of Asia-Pacific shares outside Japan to a seven month high.

 

The euro edged down 0.2 % to $1.3070, supported by the formation of a new government in Italy but pressured by the expectations of a rate cut at the ECB's monthly policy meeting.

 

Italy's new government filled a two-month political vacuum in the euro zone's third-largest economy. Relief helped to bring the country's five- and 10-year borrowing costs down to their lowest level since October 2010 on Monday.

 

The dollar was steady at 97.77 yen, having retreated from a four-year high of 99.95 earlier this month when the Bank of Japan announced massive monetary stimulus plans.

 

Elsewhere gold fell 1 % as outflows from exchange-traded funds and surging stocks undermine confidence in the precious metal and tempt investors into equities. Spot gold was trading around $14 an ounce lower at $1,464.

 

London copper steadied around $7,145 a tonne but faces its biggest monthly loss in six months in April. A worsening outlook for global growth has driven investors to cut their commodities exposure, but expectations of more central bank easing has curbed the losses.

 

Brent eased 0.2 % to $103.55 on curse for its worst monthly showing in a year.