By Mike Dolan
LONDON, March 14 (Reuters) - World financial markets
stabilised on Friday after a week of extreme turbulence, with
the U.S. dollar inching up from historic lows and European
stocks holding steady ahead of key U.S. inflation data.
But traders said the relative calm disguised investor stress
over what many see as a prevailing U.S. recession, banking
strains, hedge fund failures and the ongoing fallout from the
eight-month old credit crisis.
The U.S. Federal Reserve is now expected to cut interest
rates by another three-quarters of a percentage point when its
policymakers meet on Tuesday.
But optimism about lower interest rates is offset by next
week's first quarter earnings reports from major investment
firms Bear Stearns <BSC.N> and Goldman <GS.N>.
The release at 1230 GMT of February U.S. consumer price
inflation numbers also has investors on tenterhooks. Economists
polled by Reuters expect a 0.3 percent rise in the consumer
price index during the month and a robust 4.3 perceny
year-on-year increase -- the same as January's rate.
Rising inflation is complicating the Fed's ability to cut
credit costs to ease the financial crisis. The combination of
lower Fed interest rates and rising inflation expectations is
undermining the dollar -- which in turn is boosting oil prices
and import costs and exaggerating inflation further.
"When there is as much uncertainty as there is at the moment
economic indicators become more and more important because that
will give you some feeling at least for what really is
happening," said Jonathan Monk, senior portfolio manager at
Aerion Fund Management.
The dollar firmed from fresh all-time lows against the euro
<EUR=> and 12-year lows against the Japanese yen <JPY=> set
earlier in Asian trading.
The euro was down 0.5 percent at $1.5566 after touching a
new record high of $1.5651. The dollar was flat at 100.51 yen.
Earlier, it dipped below 100 yen for the second day in a row.
Gold and crude oil were slightly off their record highs.
Spot gold <XAU=> was at $994 holding within sight of the
$1,000-an-ounce barrier broken on futures markets on Thursday.
U.S. crude oil for April delivery <CLc1> fell 43 cents to
$109.90 a barrel. The contract touched a record for the seventh
time in a row in the previous session at $111 a barrel.
European stock traders were cautious about Thursday's gains
on Wall ST
"We can't quite join in on the U.S. markets' confidence,"
said Susanne, Lahmann, strategist at German regional bank Bremer
Landesbank.
European shares regained early losses, however, with the
pan-European FTSEurofirst 300 index <> up 0.2 percent, led
by banks and mining stocks.
But steadier European markets looked unlikely to feed into
further gains at the U.S. open.
By 1207 GMT, Dow Jones futures <DJM8> were down 0.7 percent
and Standard & Poor's 500 futures <SPM8> were down 0.6 percent.
And earlier, Japan's benchmark Nikkei <> average closed
at a more than 2-1/2 year low. It closed down 1.54 percent at
12,241.60. The broader TOPIX <> closed down by 1.9 percent
at 1,193.23.
Long-term funds remained gloomy.
"Investors have moved on from debating `will there be a US
recession' to `how long might the period of weak growth last'
and `how widespread could a global downturn become'?", said
Andrew Milligan, Head of Global Strategy at Standard Life
Investments, which has some $286 billion worth of assets under
management.
(Editing by Ian Jones)
