* Euro hits 16-mth dollar high, Fed to lag ECB on rates
* Silver slides after Monday spike, drags gold with it
* World stocks edge up
* Greek bond spreads at new euro era high
(Updates prices, adds euro high, Spanish debt sale, US futures)
By Mike Peacock
LONDON, April 26 (Reuters) - The euro jumped on Tuesday
ahead of a U.S. Federal Reserve meeting expected to give no hint
of looming policy tightening while silver tumbled after soaring
to near record highs, dragging gold and oil with it.
The euro <EUR=> rose to a 16-month high against an
under-pressure dollar, climbing around half a percent to
$1.4653, with expectations the Fed will keep policy loose likely
to see it hover near recent peaks. []
A solid Spanish debt auction also lent support.
"Any rise in the dollar is a good opportunity to sell it
since it should remain weak unless the Fed signals it wants to
tighten monetary policy," said Adam Myers, senior forex
strategist at Credit Agricole. "We do not see Bernanke doing
that tomorrow."
Investors are transfixed by the Fed's meeting, which kicks
off later on Tuesday, particularly since after its decision on
Wednesday Ben Bernanke will give the first scheduled news
briefing by a Fed chief in the bank's 97-year history.
[]
While the Fed is still in the process of buying bonds with
newly-printed money, the European Central Bank raised rates from
a record low to 1.25 percent earlier this month and is expected
to repeat the move before long.
The euro got a further leg up after Spain saw strong demand
at auctions of short-term Treasury bills, although it came at a
cost of higher yields. []
Peripheral euro zone bonds have been rattled by escalating
speculation that Greece will have to restructure its debt,
although Europe's single currency -- driven by interest rate
differentials -- has proved largely immune to the troubles.
The premium investors demand to hold Greek government bonds
rather than benchmark German Bunds rose to a new euro-era high as
investors continued to price in a restructuring of its debt.
Greek credit default swaps also rose sharply to 1,340 bps,
up 37 bps from Monday's New York closing level. []
"Spain should be treated differently to the other three
peripherals (Greece, Ireland and Portugal)," said Nick
Stamenkovic, strategist at RIA Capital Markets.
"But the market is still very nervous about Greece so it's
still very difficult to see any significant decline in yields
there any time soon."
After a four-day Easter break, the FTSEurofirst 300 index of
top European shares was up 0.2 percent at 1,145. Traders said
risk appetite was shrivelling ahead of the Fed meeting and gains
were capped by mining companies hit by the sharply lower metals
prices.
U.S. stock futures pointed to a small rise -- of a similar
magnitude to Europe's -- on Wall Street. []
World stocks as measured by the MSCI All-Country World Index
<.MIWD00000PUS> edged up 0.1 percent to 350.35.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Fed QE timelines: http://r.reuters.com/faq98r
Euro zone debt struggle graphics http://r.reuters.com/hyb65p
GRAPHIC on silver and gold: http://r.reuters.com/xup29r
For a PDF on gold, http://link.reuters.com/xuk29r
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SILVER RIPPLES
With most investors reluctant to move boldly ahead of the
U.S. central bank's pronouncement, the big market move came in
precious metals.
Spot silver <XAG=> shed nearly 5 percent to $44.61 an ounce
at one point, having rocketed to $49.31 an ounce late in New
York on Monday, within touching distance of the $49.48 record
hit in January 1980.
The drop in silver, although it later found a footing,
helped curb gold and oil.
U.S. crude futures <CLc1> were trading 0.2 percent lower at
$112.04 a barrel, with upside capped by the fall in silver and
by a remark from Saudi Arabia that the world's top oil exporter
was concerned about the economic impact of expensive oil. []
Gold <XAU=> dropped to $1503.90 after a seven-day
record-setting rally that pushed prices to $1,518.10 on Monday.
[]
"The rally has been strong, it's not surprising to see
profit-taking ahead of the FOMC meeting," said Peter Fertig, a
consultant at Quantitative Commodity Research.
(Editing by Patrick Graham)
