By Veronica Brown
LONDON, March 28 (Reuters) - European stocks followed Asia's
lead on Friday, turning higher at the end of a volatile last
full week of a ferocious quarter, while the dollar clawed higher
as investors braced for key U.S. inflation data.
But liquidity worries hung heavy over sentiment as
short-term money market rates ratcheted up, with end-quarter
demand stretching already tight conditions.
The dollar's gain undermined commodities slightly as gold
and oil fell.
The FTSEurofirst 300 <> of top European shares was up
0.2 percent at 1274.74 points after a shaky start. Japan's
Nikkei average rose 1.7 percent.
But with one more session to go after Friday, the index was
on track for its worst quarter since the third quarter of 2002.
British bank Lloyds TSB <LLOY.L> fell 2.4 percent after the
Wall Street Journal reported that the man who runs its UK retail
banking business would move to Citigroup <C.N>. Among other
banking stocks, UBS <UBSN.VX> was also weaker.
"The market's nervous at the moment and I'd be happy to get
away with a relatively dull day at the end of a short week,"
said Justin Urquhart Stewart at 7 Investment Management.
Investors have been weighed down by worries the credit
crisis may yet claim more victims on Wall Street following
market rumours that Lehman Brothers <LEH.N> could be the next
bank to fall, rumours Lehman said were "totally unfounded".
[]
Citigroup said in a note to clients that Lehman shares were
ripe for the picking, with current valuations seen as extremely
attractive.
"It's tough to have a liquidity-driven meltdown when you're
being backed by government entities that have the ability to
print money. Lehman has ample liquidity to run its business,"
Citi said.
But the global credit crunch that started in August last
year continued to weigh on money markets, with short-term
deposit rates used for interbank lending reaching high levels.
Euro deposit rates for tomorrow-next day were indicated as
high as 4.42 percent <EURTND=>, the highest since late 2001 and
some 42 basis points over the European Central Bank base rate.
INFLATION KEY
With U.S. economic health at the forefront of investors
minds, core inflation data due at 1230 GMT is expected to give
clues on the depth of monetary easing expected from the Fed as
it tries to stave off recession.
Federal Reserve policymakers on Thursday painted a bleak
picture of the ailing economy and reiterated commitment to
cutting rates to cushion the pain. []
While the dollar was generally firmer at $1.5765 <EUR=> and
99.99 yen <JPY=>, analysts said the broader downtrend was firmly
intact.
"Comments from the Fed overnight continue to paint a grim
picture of the situation in the U.S. and there's an increasing
risk of the U.S. moving into a recession so in the near term the
outlook is for the dollar to continue weakening," said Ian
Stannard, senior forex strategist at BNP Paribas.
Gold <XAU=> fell to $942.60, some $10 below late New York
levels on Thursday as the dollar gained, while crude <CLc1> was
down 48 cents at $107.10 a barrel.
Oil traders, wary over the U.S. economic outlook, took
profits from a three-day rally and were cheered by news that
Iraq's oil pipeline system was back flowing at normal levels.
(Reporting by Veronica Brown; Editing by Stephen Nisbet)
