Euro falls, bonds gain on Greece, safety flight

By Herbert Lash

NEW YORK (BestGrowthStock) – The U.S. dollar rose on Wednesday to a six-month high against the euro and bond prices fell on worries over Greece’s fiscal problems amid a renewed bid for safe-havens after a surprise drop in U.S. sales of new home.

The stronger dollar helped knock down the price of gold, oil and industrial metals as investors were cautious ahead of a policy announcement later in the day from the U.S. Federal Reserve.

Investors were also awaiting U.S. President Barack Obama’s first State of the Union address at 9 p.m. (0200 GMT January 28), when he is expected to promise more jobs creation and a slimmed budget deficit.

U.S. stocks (Read more about the stock market today. ) fell after new home sales dropped unexpectedly in December, while heavy equipment maker Caterpillar Inc (CAT.N: ) and diversified manufacturer United Technologies Corp (UTX.N: ) provided guarded outlooks for the months ahead.

European shares fell, with banks the main drag following poor quarterly results from Spanish lender BBVA (BBVA.MC: ).

“There is risk aversion about extending capital into the market place,” said Craig Peckham, equity trading strategist at Jefferies & Company in New York.

Peckham said there was concern about potential changes in an expected statement by the Federal Open Market Committee at about 2:15 p.m. (1915 GMT) after Federal Reserve policy makers conclude their two-day meeting. The Fed is expected to leave interest rates near zero percent.

Obama’s speech also was playing on investors’ nerves.

“We’ve got some jitters about what we may get out of the State of the Union tonight,” said Peckham.

Shortly after midday, the Dow Jones industrial average (.DJI: ) was down 32.34 points, or 0.32 percent, at 10,161.95. The Standard & Poor’s 500 Index (.SPX: ) was down 3.42 points, or 0.31 percent, at 1,088.75. The Nasdaq Composite Index (.IXIC: ) was up 0.30 points, or 0.01 percent, at 2,204.03.

The FTSEurofirst 300 (.FTEU3: ) index of leading European shares closed down 0.9 percent at 1,013.83 points.

Concerns over Greece weighed on all markets. The spread of the 10-year Greek bond yield over benchmark German Bunds rose to its highest since Greece adopted the euro currency in 2001.

“Greece is a great problem,” said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Frankfurt.

“If the uncertainty related to Greece is increasing then you see the dollar firm against the bunds. The strengthening of the dollar is correlated with falling markets.”

Greece denied press reports it had chosen Goldman Sachs (GS.N: ) to sell up to 25 billion euros ($35 billion) of bonds to China, though it reiterated plans for an investor roadshow in Asia.

Greek government bonds were crushed after the denial.

“The real issues in the market are: what’s going on with Greece; what the Fed is going to say later today. Also, they’re scared about Obama’s speech tonight and the attacks on the banks, and so on,” said James Combias, head of government bond trading at Mizuho Securities USA, in New York.

He noted that U.S. home sales added to pressures but remained a lesser factor in the markets.

The benchmark 10-year U.S. Treasury note was up 3/32 in price to yield 3.61 percent.

In early trading, the euro slipped 0.23 percent to $1.404 after hitting a low of $1.4022, the lowest since the end of July, according to Reuters data.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index (.DXY: ) up 0.20 percent at 78.591.

Against the yen, the dollar was down 0.22 percent at 89.42.

Oil prices fell toward $74 a barrel, pressured by a mixed inventory report from the United States and a stronger dollar.

U.S. oil for March delivery fell 20 cents to $74.51, after touching an intraday low of $73.90. London ICE Brent for March rose 11 cents to $73.40.

U.S. crude oil stockpiles fell unexpectedly by 3.9 million barrels last week while distillates showed a surprise gain, the Energy Information Agency reported, with analysts attributing draws to weather-related delays in the Gulf of Mexico.

Spot gold prices fell $4.90 to $1,092.70 an ounce.

Asian stocks fell for the eighth straight day on Wednesday on fears that China’s heightened efforts to rein in soaring credit growth could hamper the global economic recovery.

The MSCI index of Asia Pacific stocks outside Japan (.MIAPJ0000PUS: ) fell 1 percent, while Japan’s Nikkei average (.N225: ) fell 0.7 percent to a five-week low.

Investing Analysis

(Editing by Leslie Adler)

Euro falls, bonds gain on Greece, safety flight