US Dollar rises as World stocks and euro rattled

Frankfurt (Dec 2)  World shares dipped and the U.S. dollar strengthened on Monday, as investors waited for key U.S. data this week after a decent reading on China manufacturing and some mixed euro zone PMIs.

European shares had a choppy start as traders digested the data. Sterling hit a five-year high as optimism about Britain’s recovery heightened expectations interest rates would soon rise from their record low.

It was a nervy start to the week on a number of fronts. Investors had plenty of possible excuses to put a lid on world stock markets and halt eight straight weeks of gains on Wall Street.

Geopolitics got most of the headlines. Upheavals in Ukraine and Thailand escalated over the weekend. Tension grew between China and Japan over disputed islands in the South China Sea.

A decent reading on China manufacturing helped anchor Asian stocks, but Europe suffered turbulence early on. Stock markets lurched into the red and the euro slid after gaining in Asia.

Buoyant demand for manufactured goods drove euro zone factory activity to accelerate at its fastest pace in over two years last month. But growth was still weak, and Markit, which compiles the Purchasing Managers’ Indexes, said evidence of a renewed downturn in France and Spain – as well as firms cutting staff – was disappointing.

Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 all opened higher but were soon nursing losses. Milan and Madrid suffered the most, tumbling 1.3 and 0.9 per cent.

Debt markets told a similar story. Bonds from core euro zone countries such as Germany and the Netherlands lost ground. So did those from Italy and Spain, both countries on the periphery.

“You have seen the PMIs and some are better than others, but what is does seem to point to is a diverging European economy, and that is a bit of a worry,” said Michael Hewson, senior markets analyst at CMC Markets in London. “There is a lot of U.S. data this week and we are also in the last month of the year. Investors are going to be reluctant to take on new risk.”