* G20 triggers dollar selling, stock buying
* Fed QE prospects driving risk
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 25 (Reuters) - Investors on Monday ploughed a
familiar furrow of selling dollars and buying emerging shares,
concluding a Group of 20 meeting that produced lots of noise but
no firm policy initiatives had left market trends unchanged.
MSCI's emerging market stock benchmark <.MSCIEF> shot up
more than 1 percent for a year-to-date gain of nearly 13
percent. The dollar lost 0.8 percent against a basket of
currencies <.DXY>.
European shares were higher and Wall Street looked set to
open up.
G20 finance ministers pledged on Saturday to move towards
market-determined exchange rates and commit to a full range of
policies to reduce excessive external imbalances.
But no major policy initiatives emerged and the United
States failed in an attempt to shrink China's surplus.
The effect was to set investors off again on their recent
pattern of selling the dollar in expectation of further
quantitative easing asset-buying from the Federal Reserve, which
essentially entails printing more dollars and lowers their value
accordingly.
"By demanding "market determined exchange rates" (at the
G20) the U.S is opening the floodgates for a further dollar
depreciation due to the ultra-expansionary monetary policy in
the U.S," Commerzbank said in a note.
The dollar weakened broadly, losing 1 percent against the
Japanese yen <JPY=> while the euro gained half a percent to
$1.4021 <EUR=>.
Analysts at Goldman Sachs said the Fed is almost certain to
announce renewed monetary easing at next week's policy meeting.
They said it may announce $500 billion in asset purchases or a
bit more over a period about six months, and the size could
eventually reach $2 trillion.
PUMPING UP STOCKS
The prospect of a weaker dollar and higher emerging market
currencies, as well as economic growth differentials, have
already triggered massive investment flows into emerging
markets.
But the idea of huge dollar liquidity has also pumped up
equities in general.
The pan-European FTSEurofirst 300 <> was up a third of
a percent on the day. Mining stocks were leading the charge on
the assumption that a weaker dollar drives commodity prices
higher.
"Profitability and earnings are going to be up. This is a
sector that will have earnings upgrades. Even if the dollar
started to steady, there are supply constraints," said Philip
Isherwood, European equities strategist at Evolution Securities.
Earlier, Japanese equities fell, with the Nikkei <>
losing 0.27 percent as exporters were hurt by the rising yen.
JPMorgan Asset Management, meanwhile, warned its clients not
to become too carried away with the prospect of QE.
"Strong asset price gains were seen as one of the primary
objectives of QE, with the central bank reportedly keen to boost
household wealth and to prompt risk appetite within the
economy," it said.
"As a result, strong gains ahead of the FOMC arguably reduce
the need for QE and thus increase the chances of disappointment
when the Fed finally announces the outcome of its
deliberations."
(Additional reporting by Anriban Nag and Brian Gorman;
Editing by John Stonestreet)
