By Ian Chua
LONDON, April 18 (Reuters) - European stocks edged up on
Friday, shrugging off declines in many major Asian bourses but
caution ahead of earnings from Citigroup <C.N> kept the dollar
under pressure against a basket of currencies.
A clear divergence in the outlook for European and U.S.
interest rates also weighed on the dollar with the European
Central Bank seen in no hurry to lower borrowing costs
especially with euro zone inflation at a record high.
Helping boost European stocks were gains in the banking
sector after an industry source said the Royal Bank of Scotland
<RBS.L> was set to announce a rights issue next week.
"Banks are taking action to shore up their capital position
and that means they must have a better idea of precisely what
exposure they have," Justin Urquhart Stewart, an investment
director at Seven Investment Management.
"They can only come to the market once, you can't keep
coming back and doing it."
The FTSEurofirst 300 <> index of top European shares
rose 0.6 percent with Britain's FTSE <> gaining 0.2 percent
and Germany's DAX <> adding 0.6 percent.
Bank stocks such as Societe Generale <SOGN.PA> and BNP
Paribas <BNPP.PA> rose 1.5 to 2.5 percent, but RBS shares shed
2.1 percent after losing early gains.
Stronger-than-expected earnings from Internet leader Google
Inc <GOOG.O> after the U.S. closing bell on Thursday also helped
lift sentiment.
Suggesting lower risk aversion, the iTraxx Crossover index
<ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits,
tightened by about 10 basis points.
Earlier, Japan's Nikkei <> rose 0.6 percent but MSCI's
measure of other Asian stock markets <.MIAPJ0000PUS> slid 0.6
percent. MSCI world equity index <.MIWD00000PUS> edged up 0.3
percent.
Gains in stocks weighed on demand for safe-haven government
bonds, pushing yields higher. The 10-year Bund yield <EU10YT=RR>
climbed 1.5 basis points to 4.098 percent, while the yield for
the benchmark 10-year U.S. Treasuries <US10YT=RR> put on 1.4
basis points to 3.774 percent.
DOLLAR EASES
The dollar struggled against a basket of major currencies
<.DXY>, shedding 0.2 percent as the euro <EUR=> climbed 0.3
percent to $1.5939.
"The main driver is interest rate differentials and it looks
as though the ECB won't cut in the first half of the year,"
said Kikuko Takeda, senior currency economist at BTM-UFJ.
Against the yen, the dollar slipped 0.1 percent to 102.41
yen <JPY=>.
Having slashed U.S. interest rates by 300 basis points since
September to support an economy that some see in recession, the
Federal Reserve is expected to cut the benchmark Fed funds rate
by another 25 to 50 basis points this month from 2.25 percent.
The market is pricing in an 84 percent chance of a 25 basis
point easing and a 16 percent chance of a 50 basis point cut
from the Fed at the April 29-30 policy-setting meeting.
Investors returned to gold after the previous session's
fall, pushing the precious metal back towards $950 an ounce as
U.S. crude oil <CLc1> held just shy of its record high of
$115.54 a barrel set on Thursday. Oil was at $114.93 a barrel.
Among other commodities, copper <MCU3=LX> rose 1.1 percent,
underpinned by falling inventories and a strike at the world's
biggest producer, Codelco.
(Additional reporting by Amanda Cooper and Simon Falush)
