Central bank, Greece uncertainty weighs on investors

LONDON (Reuters) - Investors sold riskier assets across financial markets on Friday, in limbo until they learn how much of a punch central banks will give to the stumbling global economy.

The euro zone's struggle to prevent its own break-up continues to dominate markets and play on economic confidence.

European shares <.ftse>, which have suffered their worst run in over a month in the last few days as euro zone uncertainty has returned, was down 0.2 percent in early afternoon trading pulling MSCI's main global index <.miwd00000pus> down around a third of a percent on the day.

The falls were accelerated by cautious comments from German Chancellor Angela Merkel about Greece and by concerns that the European Central Bank may not launch its new bond-buying-led crisis plan as early as markets have been eyeing.

"We are in a vacuum, policy-wise, ahead of the Jackson Hole meeting and the (European Central Bank) meeting on September 6 so we are in a wait and see mode," said Saxo Bank chief economist Steen Jakobsen.

Federal Reserve Chairman Ben Bernanke and other central bank leaders meet in Jackson Hole, Wyoming, next week for an annual get-together that often hints at what monetary policy is to come.

"We are waiting to see whether we get QE3 (another round of asset buying from the Fed) and to see how the ECB is going play the promise that it will help the peripherals, so right now the market is just concentrating on technicals."

After falls on Thursday, U.S. stock markets were expected to open slightly higher when trading resumes on Wall Street at 1330 GMT.

Key global stock markets have risen 15-20 percent since June as hopes of a resolution to the euro zone crisis have sustained investor optimism despite a deterioration in company earning outlooks.

But the rises appear to have come to a halt over the last week. The S&P 500 has failed to break through 1425-30 points, while Europe's top shares have been unable to climb above 1115 points.

WILD CARD

The euro fell away from its recent seven-week highs versus the dollar, to stand at a day-low of $1.2505 by 1130 GMT.

Pushing it down were fading hopes of a rapid new euro zone drive to end its crisis as politicians signaled new plans could take another month to put together. The dollar inched up 0.2 percent to 78.60 yen.

"The data calendar is fairly empty so we suspect that trading will be technical in nature today," said KBC economist Piet Lammens, pointing to a meeting in Berlin between Merkel and Greek Prime Minister Antonis Samaras as the main point of interest for markets.

"Merkel and Samaras is of course always a wild card but we have had so many indications that the Greek issue will be put back to the end of September," Lammens said.

Following the meeting, Samaras said he was convinced an upcoming report by Greece's trio of international lenders would show the government can get quick results with its new debt cutting plans.

Comments from Merkel that Germany and France wanted Greece to stay in the euro provided little comfort for markets looking for more concrete action and helped accelerate the euro's drop.

Triple A-rated German government bonds, traditionally favored by risk-adverse investors, have rebounded sharply in recent days, tracking the rise in U.S. Treasuries and helped by a return of uncertainty among investors about the euro zone's progress out of its debt crisis.

Bund futures were up 46 ticks at 143.96 as they continued to bulldoze higher, while Spanish Italian and Portuguese bonds saw falls ranging between 0.1 and 0.8 percent.

MESS

Oil prices, which have been trading in a tight range this week, slipped below $115 per barrel but remained on track for their fourth weekly gain. "It's no secret that the global economy is in bad shape," said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.

"Europe's a mess, the U.S. is struggling and China, which was seen as a growth engine, is also sputtering -- all of which points to weak demand for crude."

Metal prices remained supported by expectations of central bank support and unrest in producer countries. Spot gold dipped on Friday but has risen more than 3 percent this week after Federal Reserve minutes showed the bank is likely to deliver another dose of stimulus "fairly soon".

With data from the world's biggest economy coming out mixed so far this week, durable goods data was set to be one of focuses of U.S. trading.

Investors were also watching Spain again on Friday, after three euro zone sources told Reuters that Madrid is negotiating with European partners over conditions for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout.

Madrid's IBEX <.ibex> had jumped nearly 30 percent since comments by European Central Bank head Mario Draghi in late July sparked expectations of fresh measures to help lower the borrowing costs of Spain and Italy. But it has lost 4.7 percent since a peak hit on Monday, although charts show the index has managed to keep its four-week upward channel intact.

"Pullback would be welcomed by many money managers who failed to take part in the recent move and at some stage will need to tell clients of the underperformance," IG Markets strategist Stan Shamu wrote in a note.

(Editing by Jeremy Gaunt and Giles Elgood)

Source: http://news.yahoo.com/asian-shares-retreat-dim-outlook-growth-fed-stimulus-024726309--finance.html

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