By Ian Chua
LONDON, Feb 13 (Reuters) - Worries about the U.S. economy
resurfaced on Wednesday before key U.S. retail sales data,
prompting investors to pare recent gains in stocks and seek the
relative safety of government bonds.
The low-yielding yen rose as investors took some risky bets
off the table in case the U.S. report showed more weakness in
the world's biggest economy than already anticipated.
A weakening consumer sector, which accounts for more than
two thirds of the U.S. economy, has fuelled concerns that a
recession is increasingly likely. "The question is how much
weaker it's going to be," said Joseph Kraft, managing director
of Japanese capital markets for Dresdner Kleinwort in Tokyo.
The data, due at 1330 GMT, will set the scene for U.S.
Federal Reserve Chairman Ben Bernanke's congressional testimony
on Thursday, another closely-watched event which is likely to
keep investors cautious.
Tuesday's news that billionaire investor Warren Buffett had
offered to reinsure $800 billion in municipal debt guaranteed by
bond insurers had helped to soothe worries about further fallout
from the credit crisis and sent global stocks rallying.
The FTSEurofirst 300 <> index of top European shares,
which jumped 3.4 percent on Tuesday, fell 1.2 percent in early
trade, with Germany's DAX <> and Britain's FTSE 100
<> both also down more than 1 percent.
"The market really doesn't have any conviction. There is so
much uncertainty out there," said Dirk Thiels, head of global
equity funds at KBC Asset Management.
MSCI's main world equity index <.MIWD00000PUS> was down 0.5
percent. Earlier, Japan's Nikkei <> edged up just 0.4
percent, while MSCI's measure of other Asian stock markets
<.MIAPJ0000PUS> slipped 0.3 percent.
RISK AVERSION
Signalling rising risk aversion, European credit spreads
widened sharply, pushing the Markit iTraxx Crossover index
<ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, up 16
basis points to 571 basis points.
With investors looking to cut back on risky bets, both the
low-yielding yen and government bonds rose.
Investors tend to sell the yen in risky carry trades to fund
purchases of higher yielding assets and reverse those trades
when risk appetite fall.
The dollar slipped 0.1 percent to 107.20 yen <JPY=>, while
the euro was 0.3 percent lower at 156.04 yen <EURJPY=>. Against
the dollar, the common currency lost 0.2 percent to $1.4556.
Persistent worries about downside surprises on the euro zone
economy and the possibility of European Central Bank interest
rate cuts in the next few months kept the euro pressured.
"Getting above $1.4630 would certainly be very difficult
(for the euro) even if today's retail sales numbers out of the
U.S. were to surprise on the downside," said Michael Klawitter,
currency strategist at Dresdner Kleinwort.
Euro zone government bond futures rose and Bunds and U.S.
Treasuries regained some poise after stumbling a day earlier.
The March Bund future <FGBLH8> climbed 28 ticks to 116.73 while
the 2-year Bund yield <EU2YT=RR> edged down slightly to 3.11
percent.
Among commodities, U.S. crude <CLc1> was little changed at
$92.70 a barrel, remaining subdued after a three-session rally
fizzled out on Tuesday. Copper fell around 2 percent as Chinese
buyers, returning to the market after the lunar New Year
holidays, proved unwilling to push prices higher.
(editing by David Stamp)
