Euro gains on Greece aid hopes, Asia shares

Thursday, 2 June 2011 00:00 - - {{hitsCtrl.values.hits}}

SINGAPORE, (Reuters) - The euro traded at a three-week high versus the dollar on Wednesday, buoyed by hopes for a fresh bailout package for debt-laden Greece, while Asian stocks edged higher after manufacturing data from China was largely in line with expectations.

The euro rose to $1.4438, its highest since early May, on a Greek report that the European Union, International Monetary Fund and European Central Bank are expected to finalise a second financial aid package for Greece in the coming days, traders said.

That could give the euro impetus to climb, traders said.

“Our view is that Greece will get another package – perhaps with some token ‘voluntary’ lengthening of maturities but not significant enough to really damage private investors - and so the euro should rebound over the coming few weeks,” said Rob Ryan, a FX strategist at BNP Paribas in Singapore.

The dollar was hobbled by more weak U.S. economic data on

Tuesday, dipping 0.1 percent against the yen to 81.26 yen and easing 0.3 percent against a basket of major currencies.

Japan’s Nikkei share index closed 0.3 percent higher despite a bout of early profit-taking following Tuesday’s boost from positive industrial and manufacturing activity data. Asian stocks outside of Japan rose 0.4 percent, led by by resources shares as oil and metal prices rebounded overnight.

With debt problems in peripheral euro zone countries deepening and signs of a slowdown in the global economy, investors reduced their exposure to stocks in May for the fourth month in a row, Reuters polls showed. At their most pessimistic since the third quarter of 2010, investors moved out of shares and into bonds and cash, according to the surveys.

Year-to-date gains in world stocks, measured by MSCI, have shrunk to around 5 percent from nearly 9 percent earlier this year, and a key question for markets is whether investors exit more risky positions before the end of the Federal Reserve’s $600 billion Treasury purchase programme (QE2) in June.

“Investors now see a slowdown in goods production as virtually guaranteeing a soft patch for overall US economic growth,” Societe Generale said in a research note, suggesting weakness will linger in the United States.

Markets were largely unfazed by surveys showing Chinese factory growth is slowing under the weight of government credit curbs and power shortages, echoing reports from Europe and the United States showing those economies are growing more sluggish.

Chinese factory growth slowed to at least nine-month lows in May as the rate of new orders cooled off, two PMI surveys showed on Wednesday.

Though the easing was in line with market expectations, and manufacturing activity continued to expand, the softening in orders could flag further economic weakness ahead and weaker demand for riskier assets such as equities and commodities.

Gold fell around $5 to $1,530 per ounce by 0452 GMT. Gold, one of the chief beneficiaries of investors move to safe-haven, set a record high of $1,575.79 per ounce in early May.

Brent crude oil for July delivery was unchanged at$116.97 a barrel, having recovered from its fall below $115 earlier this week.