* Dollar pares losses as G20 finmin meet gets underway
* MSCI world equity index slips 0.2 percent, losses limited
* Weak dlr, strong stocks seen on view for more Fed QE view
By Naomi Tajitsu
LONDON, Oct 22 (Reuters) - The dollar pared losses on Friday
as investors were uncertain whether the United States would gain
support at a G20 meeting in calling for countries to avoid
weakening their currencies to gain an economic advantage.
European shares slipped on caution as the G20 finance
ministers' meeting got underway, but losses were limited as the
spectre of more quantitative easing by the Federal Reserve next
month supported equity markets around the world.
U.S. shares were expected to open lower, after Asian shares
were little changed.
Short-dated German government bond yields rose after an
unexpected rise in German business sentiment reinforced the
European Central Bank's cautiously optimistic view of the
region's economy, although this failed to boost stocks.
Investors were sceptical Washington will gain support in
trying to get countries to stop weakening their currencies for
economic gain, and many in the market anticipated a statement
from the meeting lacking any punch would keep the dollar weak.
"Markets are really struggling to see what's going to come
out of the G20 meeting," said Simon Smith economist at FXPro.
"(U.S. Treasury Secretary Timothy) Geithner has his idea
about putting something in practice about currency rates
reflecting fundamentals ... but we've heard this all before."
Group of 20 finance and central bank chiefs meet on Friday
and Saturday in Gyeongju, South Korea, seeking agreement on a
common path to manage currency, trade and macroeconomic
imbalances ahead of a leadership meeting in Seoul next month.
A draft communique called for countries to avoid economic
imbalances and excessive state interference in currency markets,
Russia's deputy finance minister told Reuters. [].
No numeric targets for current accounts were mentioned.
Developing economies such as China may be cool to the idea
of letting their currencies fly when the Fed is discussing a new
round of quantitative easing, an issue which has spread tension
across markets over a potential currency war. []
For financial markets, at stake in the G20 meeting is
whether to keep alive what has been a dominant trade since
September of selling dollars to buy emerging market equities,
commodities and longer maturity bonds.
The dollar has taken a beating in the past month on swirling
speculation the Fed will launch another round of pumping cash
into markets to help stimulate the U.S. economic recovery, which
would likely push the dollar even lower.
By 1055 GMT, the dollar was up slightly on the day against a
currency basket at 77.482 <.DXY>, while the euro slipped a touch
to $1.3912.
The dollar is poised to end the week slightly higher after
suffering a deep sell-off in the past month or so, as investors
trim back short positions which have been piling up since
speculation of more Fed easing has picked up.
Investors also took profits on their bets on emerging Asian
currencies, particularly after China's interest rate rise on
Tuesday sparked concerns about the impact on domestic growth.
The FTSEurofirst 300 index <> slipped 0.1 percent as
G20-related caution prompted investors to trim long equity
positions after the index hit a six-month high on Thursday.
"Traders are likely to clear their books (ahead of the
weekend), especially with the G20 meeting going on," said Heino
Ruland, strategist at Ruland Research in Frankfurt.
Still, losses were limited in market participants expected
stocks to remain supported given a strong run of European and
U.S. earnings, which suggest the global economy is recovering.
Limiting losses were higher-than-expected profits at
Ericsson <ERICb.ST>, the world's biggest mobile network gear
maker. []
The MSCI world equity index <.MIWD00000PUS> slipped 0.3
percent, but hovered in range of a roughly two-year high hit
earlier in the month.
World stocks have been boosted by a rise in emerging market
currencies, as capital flows into these high-growth regions have
cranked up on growing expectations the Fed will have to print
dollars to buy more assets and pull down market rates.
Global emerging market equity funds absorbed a net $3.76
billion in new money while emerging market bond funds took in
more than $1 billion in the week ended Oct 20, fund tracker EPFR
Global said in a note.
With more than two months to go until the end of the year,
inflows to emerging markets have already exceeded 2009.
The German Ifo business sentiment index hit its highest in 3
1/2 years on Friday, helping to push the yield on two-year
German government bonds <DE2YT=TWEB> rose almost a basis point
higher to 1.010 percent.
Oil investors cheered the data, which showed the German
economy remains buoyant pushing U.S. crude oil prices <CLc1> up
0.7 percent on the day to $81.10, although support for the
dollar prodded gold prices <XAU=> to a two-week low.
(Additional reporting by Joanne Frearson; Editing by Toby
Chopra)
