Stocks rally pauses near 29-month highs
The rally in shares and other riskier assets took a breather on Tuesday, with world stocks trading a touch below the previous day's 29-month highs while the dollar fell broadly.
Benchmark U.S. equity indexes hit 2-1/2 year highs on Monday, with news of multi-billion-dollar mergers reinforcing expectations that cash-rich companies are confident enough about the economy to buy up undervalued rivals.
Recent strong manufacturing and services sector surveys around the world and a fall in the U.S. unemployment rate point to sustained momentum in the global recovery.
But in Europe, where the benchmark index hit 29-month peaks on Monday, investors paused to consolidate their positions.
The MSCI world equity index <.MIWD00000PUS> was up 0.15 percent, having hit its highest level since August 2008 on Monday. The Thomson Reuters global stock index <.TRXFLDGLPU> also rose around 0.1 percent.
The FTSEurofirst 300 index <.FTEU3> was down 0.3 percent.
Any hesitation at current levels and the market will likely retreat, taking a little steam out of the current rally and forcing traders to rethink their long positions, said Enis Mehmet, analyst at Autochartist.
About 72 percent of S&P 500 companies that have reported results so far have posted stronger-than-expected earnings, according to Thomson Reuters data.
Investors expect aggregate earnings rose 37 percent in the last quarter, the highest estimate for that period in more than 10 months.
Emerging stocks <.MSCIEF> were down slightly on the day. China is closed for the Lunar New Year holidays.
U.S. crude oil rose 0.2 percent to $87.66 a barrel.
German government bond futures were up 20 ticks.
RATE PLAY
The dollar <.DXY> -- which has suffered against the euro because of expectations euro zone interest rates will rise sooner -- fell 0.3 percent against a basket of major currencies while the euro rose 0.4 percent to $1.3645.
European Central Bank policymaker Yves Mersch said late on Monday the bank could raise interest rates to contain inflation before it withdrew measures to support banking liquidity, although poor German data spoke against an early rise.
I think the euro will be supported but it will need a dose of hawkishness from the European Central Bank to rise, said Koji Fukaya, chief FX strategist at Credit Suisse in Tokyo.
The euro fell back from a 12-week high of $1.3862 last week after ECB President Jean-Claude Trichet failed to escalate the ECB's recently sharper tone on inflation, cooling market expectations on the pace of monetary tightening.
That was followed by an unexpected fall in the U.S. jobless rate, which sparked a rise in U.S. debt yields, further helping the dollar against the euro.
The 10-year U.S. yield broke above a trading range that had been in place since early December and U.S. money markets have started to price in some chance of a U.S. rate hike later this year.
Still, investors are reluctant to buy the dollar aggressively after Federal Reserve Chairman Ben Bernanke said last week that the U.S. economy still needs the Fed's help -- a stance many traders expect him to repeat when he speaks on Wednesday.
(Editing by Patrick Graham)
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