By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 23 (Reuters) - A flight from emerging market
debt and stocks helped push the dollar to a two-year high
against major currencies on Thursday as fears built about a
global recession.
Investors were also focusing on major company earnings
reports, fearful that the worst financial crisis in 80 years and
the deteriorating global economy could combine to batter
corporate profits.
European shares put in gains on the back of some positive
results, but Asian shares fell to four-year lows and emerging
markets were again under the gun.
MSCI's main emerging market stock index <.MSCIEF> was down
3.3 percent on the day, hitting a nearly four-year low after
major losses on Wednesday.
Emerging market sovereign debt spreads <11EMJ> blew out to
more than 800 basis points over U.S. Treasury yields, a gap not
seen since late 2002.
The cost of insurance against sovereign debt default in
countries such as South Korea, Indonesia, the Philippines,
Russia and Kazakhstan has soared over the past two days.
"There is now little argument that the world economy will
experience a period of sub-par growth, and a recession in
several advanced economies looks increasingly likely," Goldman
Sachs said in a research note.
Investor flight from emerging markets over the past few
weeks has accelerated this week, pushing the U.S. dollar to new
heights, among other things as money is both repatriated from
overseas and seeks relative safety in U.S. fixed income.
The dollar hit a two-year high against a basket of
currencies with the dollar index <.DXY> up 0.2 percent to 85.6
<.DXY> after hitting a two-year peak above 86.
The euro slipped 0.3 percent from late U.S. trade to $1.2817
<EUR=>.
"We are going to see the current pressures continue as
tensions in emerging markets continue. The dollar will remain
supported and the high yielders will stay under pressure," said
Ian Stannard, FX analyst at BNP Paribas.
EARNINGS IN SIGHT
European shares staged a mild recovery in choppy trade,
helped by surprisingly strong results from some heavyweights,
which helped shake off the effects of falls on Wall Street and
Asia.
The FTSEurofirst 300 <> index of leading European
shares was up 0.4 after falling 5.4 percent on Wednesday and 42
percent this year.
Nestle <NESN.VX>, the world's biggest food group, reported a
forecast-beating rise in nine-month sales. Agrochemicals and
seeds group Syngenta <SYNN.VX> also reported a strong rise in
third-quarter sales.
Other major European companies scheduled to release earnings
later included Daimler <DAIGn.DE> and Carrefour <CARR.PA>.
In the United States, technology bellwether Microsoft
<MSFT.O> will release quarterly results alongside drugmakers Eli
Lilly <LLY.N> and Bristol-Myers Squibb <BMY.N> as well as Dow
Chemical <DOW.N> and mail and logistics group United Parcel
Service <UPS.N>.
Earlier, Japan's Nikkei average <> hit its lowest point
since May 2003 before paring losses to end down 2.5 percent. It
shed 213.71 points to 8,460.98 after earlier falling as low as
8,016.61, its lowest in nearly five and a half years.
The broader Topix <> ended the day down 2 percent at
871.70 after earlier falling more than 6 percent.
Euro zone government bond yields were unchanged to slightly
firmer. The two-year Schatz yield was 2.838 percent <EU2YT=RR>
and 10-year Bund yields were 3.826 percent <EU10YT=RR>.
(Additional reporting by Jessica Mortimer, editing by Mike
Peacock)
