* Bernanke cools U.S. rate rise speculation, yields ease
* Shares, dollar subdued
* Investors seek out government bonds
* Japan announces extra stimulus spending
By Ian Chua
LONDON, Dec 8 (Reuters) - Global share markets were becalmed
on Tuesday and the dollar struggled after Federal Reserve
Chairman Ben Bernanke gave a cautious assessment of the world's
biggest economy, driving investors towards government debt.
European Central Bank President Jean-Claude Trichet was
similarly cautious, saying the euro zone economy faced a bumpy
road to recovery and the prospect of modest growth ahead.
[]
Bernanke dampened speculation of an early U.S. interest rate
rise, saying the economic recovery still faced "formidable
headwinds" and the central bank was sticking to its pledge to
hold benchmark rates at exceptionally low levels for an
"extended period". []
His comments took the shine off last Friday's non-farm
payrolls report which showed a surprise fall in the U.S. jobless
rate and triggered a drop in the yield of the interest rate
sensitive two-year Treasury note. []
The two-year note yield <EU2YT=RR> was last at 0.75 percent,
well off Monday's high of around 0.87 percent.
"There is still nervousness in the market," said Bernard
McAlinden, investment strategist at NCB Stockbrokers in Dublin.
"People have enough big picture things to worry about. I
don't think there is complacency in the market."
MSCI world equity index <.MIWD00000PUS> and the FTSEurofirst
300 index <> of top European shares were both flat on the
day.
In Asia, Japan's Nikkei <> fell 0.3 percent.
DOLLAR STRUGGLES
Meanwhile, the dollar <.DXY> also struggled against a basket
of major currencies, after having risen strongly on the back of
Friday's U.S. payrolls report.
"Bernanke's speech was dovish, and he suggested there would
not be an immediate rate rise," said Marcus Hettinger, global
currency strategist at Credit Suisse in Zurich.
"There are more short dollar positions to cover, but we
still see the currency weaken."
The dollar fell 0.6 percent versus the yen <JPY=> but was
little changed against the euro at $1.4818 <EUR=>. The euro was
also 0.6 percent lower versus the yen <EURJPY=> at 131.85 yen.
Against the more cautious backdrop, government bond yields,
which move inversely to prices, were mostly lower, particularly
short-dated paper. The two-year German yield <EU2YT=RR> slipped
4.1 basis points to 1.295 percent.
Markets were little moved by the Japanese government
finalising a 7.2 trillion yen ($80.6 billion) stimulus package,
slightly more than its original plan. []
"The stimulus news had been mostly factored in as the
increase was almost due to pressure from the market," said
Masaru Hamasaki, a senior strategist at Toyota Asset Management
in Japan.
Investors are becoming more cautious as the year-end draws
near and the price of risk is rising, according to the VIX fear
factor index <.VIX>, which rose 4 percent on Monday.
Oil prices <CLc1> found a steadier footing near $74 a barrel
after a 2 percent slide on Monday, but forecasts for a build in
U.S. crude stocks and slow economic recovery were seen limiting
gains.
Gold <XAU=> was little changed at $1.158.20 an ounce after a
rebound to $1,168 lost steam as the dollar recovered from an
earlier fall.
(Additional reporting by Atul Prakash and Naomi Tajitsu in
LONDON and Susan Fenton in HONG KONG, editing by Mike Peacock)
