Global Markets Climb as Syria Tension Eases

Markets Reuters

Signs of delay in expected Western military strikes on Syria ended a three-day sell off on world share markets on Thursday, but investors were on edge over future turmoil in the Middle East.

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European stocks joined the charge higher, lifted by a surge in Vodafone shares on renewed talks with Verizon, while U.S. stock index futures pointed to further gains when Wall Street reopens later .

The dollar rose against the safe haven yen though hard-hit currencies in India, Brazil and Indonesia bounced higher against the greenback as their central banks moved to stem capital outflows.

U.S. President Barack Obama has set out the case for a limited military strike but divisions in Britain and among U.S. lawmakers seem set to delay any imminent action, giving investors a reason to take a breather.

"The overall sentiment remains cautious, but the fact that military action against Syria doesn't look imminent any more is prompting a number of investors to bet on a rebound," said Guillaume Dumans, co-head of research firm 2Bremans.

In the oil markets, the reduced likelihood of an immediate major supply disruption saw Brent crude drop below $115 a barrel , ending its strongest two-day gain since January 2012.

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U.S. oil dropped by $1.50 a barrel to a low of $108.60 following its near 4 percent gain over the past two days.

"The market is reassessing the supply implications of the conflict in Syria," said Eugen Weinberg, global head of commodities at Germany's Commerzbank.

Traditional safe-haven gold eased 0.7 percent to around $1,408 an ounce after reaching a 3-1/2 month high in Wednesday's flight to safety.

CALM RETURNS

The calmer tone in world equity markets emerged after energy shares on Wall Street gained on the back of the rise in oil prices, and this spread to Asia where MSCI's Asia-Pacific index, excluding Japan, rose 1 percent.

The MSCI world equity index, which tracks shares in 45 countries, was virtually flat by mid-morning in Europe, but lost two percent this week as the Syrian tension adds to worries about the impact of an expected reduction in the Federal Reserve's stimulus policy.

The concerns about the Fed's next move still dominate the markets and investors will be closely watching the updated second quarter U.S. GDP data and weekly jobless claims numbers due out later for any clues as to its scale and timing.

Most analysts expect the Fed to cut back on the $85 billion a month it spends buying bonds to boost economic activity next month, though this week's sudden rise in oil prices and the sell off in emerging markets have complicated the outlook.

European shares meanwhile were making good gains across the board on Thursday, helped by the resolution of a political crisis in Italy and evidence of steady improvement in corporate earnings.

The FTSE Eurofirst 300 index of top European firms was up 0.3 percent while Italy's main benchmark index, the FTMIB , outperformed with a rise of 0.7 percent.

However, an auction of new Italian debt showed investors remained concerned about the shaky coalition with the government borrowing costs over five years rising.

CURRENCIES STEADIER

World currency markets have stabilised, with the dollar rising against major developed world currencies, while the actions among some emerging market nations limited their losses against the greenback.

The dollar was up about 0.5 percent against the yen at 98.24 yen, and gained against the euro to leave the single currency down 0.7 percent at $1.3250.

"A slight easing of the tensions in Syria and emerging markets, has helped the dollar," said Simon Derrick head of currency research at Bank of New York Mellon.

In emerging markets, Brazil's decision to raise its benchmark interest rate to a 16-month high of 9 percent on Wednesday helped stabilise the real, while in Indonesia the rupiah strengthened slightly after its central bank hiked its key lending rates.

The Indian rupee rose as high as 66.85 per dollar, up sharply from a record low of 68.85 per dollar hit on Wednesday when its central bank moved to provide dollars directly to oil companies to give the currency some relief.

Emerging market currencies in countries with high current account deficits such as India, Turkey and Brazil have plunged between 12 and 18 percent against the dollar this year, as portfolio flows exited on expectations of a withdrawal of the U.S. monetary stimulus that has boosted riskier assets.