By Veronica Brown
LONDON, April 22 (Reuters) - Surging oil cut stock market
losses on Tuesday as resources took some sting out of bank
stress from a Royal Bank of Scotland rights issue, with record
crude also helping shove the euro towards record highs.
RBS <RBS.L> fell 3.2 percent after announcing a record 12
billion pound rights issue to cover a potential 5.9 billion
pound writedown on the value of toxic assets and help to rebuild
a stretched balance sheet.
Although the rights issue was broadly in line with
expectations, banking worries stayed at the forefront of
investors' minds after softer than expected results from Bank of
America Corp <BAC.N>, the biggest U.S. retail bank.
Banks are under pressure to reveal the full extent of their
writedowns on assets linked to the crumbling U.S. housing market
with recent economic data pointing to an economy on the brink
of, if not already in, recession.
"As this (RBS issue) could be the first in a string of
capital raising moves by European banks, attention could turn to
the next likely candidate," said Stephen Surpless, senior
analyst at Cantor Fitzgerald in London.
But while financials suffered due to nagging uncertainty
over the impact of the crisis in credit markets, oil topped the
$118 a barrel mark to hit a record high <CLc1>.
The surge in oil helped lift commodity-related stocks,
offsetting some of the financial-led losses to leave
FTSEurofirst 300 Index largely flat on the day <>.
The earlier fall in European shares mirrored a weaker tone
in Asia overnight after Tokyo's Nikkei Index closed down 1.1
percent.
U.S. stock market futures were pointing to a mixed open
later, with earnings focus turning to non-financials and results
from Yahoo, AT&T and Mcdonalds.
Meanwhile, money markets were digesting a plan announced
this week by the Bank of England to ease strain in UK mortgage
markets.
The interbank cost of borrowing three-month sterling funds
inched lower, while three-month dollar lending rates stabilised
after rising sharply last week, according to the latest daily
fixings from the British Bankers' Association.
Meanwhile, the cost of borrowing three-month euro funds rose
to the highest level since mid-December [].
EURO NEARS HIGHS
The impact of surging oil prices spread into currency
markets as the euro rallied towards recent record highs.
Rising inflation stemming from soaring food and energy
prices gave added impetus to inflation-busting talk from ECB
policymakers determined to contain price pressures.
ECB Governing Council member Christian Noyer said the bank
would do what is needed to bring inflation back to its target
level of just below 2 percent, adding that it would "move rates"
if needed.
That followed comments from Governing Council member Yves
Mersch, who said the ECB has to ask itself each month whether a
rate rise is needed to control inflation. []
"We have been hammered by hawkish comments from ECB members
overnight and during the past week, aggressive comments
suggesting that not only is the ECB planning to leave rates on
hold, but they are also actively considering raising rates to
stamp on inflation," said Teis Knuthsen, head of FX research at
Danske Markets in Copenhagen.
"That puts a certain perspective on the relative economic
stance between the U.S. and the euro area," he added.
The euro rallied, having earlier fallen on news that
Germany's BdB banking association has taken control of
Duesseldorfer Hypothekenbank <DUOGg.F> and planned to sell it
after the property lender ran into problems linked to the
financial crisis.
One of Duesseldorfer Hypothekenbank's management board
members later told Reuters it is not facing problems that could
threaten its existence.
The single currency was last quoted up a quarter percent on
the day at $1.5942 <EUR=>, nearing last week's record high at
$1.5983 according to Reuters data.
The dollar was flat at 103.18 yen <JPY=> and 0.1 percent
lower versus a basket of six other major currencies at 71.545
<.DXY>.
Any dips in the euro from last week's historic high have
been contained by a view that interest rate differentials are
set to move further in its favour, as the ECB is seen keeping
interest rates at least at a six-year high of 4.0 percent for a
while.
By contrast, markets expect the Federal Reserve to lower
rates further from the current 2.25 percent at a policy meeting
on April 29-30.
Fresh impetus for such expectations -- which could drag the
dollar lower -- could come from U.S. housing data at 1400 GMT
with the annual rate of existing home sales seen easing to 4.92
million units.
(Additional reporting by Sitaram Shankar in London and Blaise
Robinson in Paris; editing by Stephen Nisbet)
