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China data lifts shares, yen sinks vs euro

World shares hit their highest level in a week on Wednesday after forecast-beating Chinese import data pointed to a growing economic recovery, while Japan's yen sank further to a three-year low against the euro.

China reported a modest trade deficit of $884 million in March as the 14.1 percent year-on-year surge in imports eclipsed export growth of 10 percent, signaling domestic demand was gathering the pace needed to drive a recovery.

The data boosted mining and basic resources stocks, and supported industrial commodities including oil, copper and iron ore. However, some analysts said the slow export growth created a more mixed picture of the strength of the global economy.

"Exports to the U.S. and Europe were a bit disappointing, so on the whole, I would say it's more a mixed bag than a very positive bag of data." said Adrian van Tiggelen, senior investment specialist at ING Investment Management.

The MSCI all-world share index, .MIWD00000PUS, which tracks stocks in 45 countries, rose 0.4 percent to its highest level since April 3 while MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent.

The gains also followed a strong session on Wall Street where the Dow Jones industrial average .DJI closed at a record high on Tuesday.

The FTSEurofirst 300 index .FTEU3 of top European shares was up 0.9 percent by midmorning with London's FTSE 100 .FTSE, the Paris CAC-40 .FCHI and Frankfurt's DAX .GDAXI all around one percent higher.

European markets were also bolstered by data showing a rebound in French industrial output which helped to offset a sharper than forecast drop in Spanish factory output.

U.S. stock index futures indicated Wall Street would gain as well although attention will be on latest minutes from the Federal Reserve's last policy meeting, due out at 2 p.m. ET.

Investors will be scrutinizing the release for clues on whether Fed officials were warming to the idea of scaling back purchases of bonds, although weak U.S. jobs data for March has lowered expectations of any near-term change in policy.

Euro Firms

In the currency market, the yen hit a more than three-year low against the euro and edged closer to 100 to the dollar as it extended a slide triggered by the Bank of Japan's radical monetary easing steps.

The euro has been supported in recent days by market speculation that Japanese investors looking for higher returns may buy euro zone assets, sending it up 0.5 percent on Wednesday to 130.20 yen.

The gains against the yen also helped to push the euro to a one-month high against the dollar of around $1.31, while the greenback is being held in check by a large amount of currency options close to the 100 mark.

These options have generated demand from banks to buy the yen and sell dollars to protect their exposure, and once they expire the yen is likely to resume falling.

The dollar has jumped around 7 percent against the yen since last Thursday when the BOJ said it would pump about $1.4 trillion into the economy and double Japan's monetary base in two years to defeat deflation.

Debt markets remain supported by the prospect of huge Japanese government bond purchases by the central bank, which is expected to send investors on a hunt for higher yields elsewhere and for assets denominated in currencies other than the rapidly-weakening yen.

Highly-rated euro zone bond yields, which have been the focus of this speculation, have eased away from their recent lows as a wave of newly-issued bonds absorbed much of any investor demand, with prices seen slipping further.

Around 9 billion euros' worth of top-rated debt was sold on Wednesday, adding to 14 billion euros of bonds issued on Tuesday. The U.S. Treasury planned to sell $21 billion in 10-year notes later and will sell $13 billion of 30-year bonds on Thursday.

U.S. T-note yields were 1.9 basis points higher on the day at 1.77 percent, while German 10-year yields were 3 basis points higher at 1.29 percent.

Geopolitical Tensions

In the oil market signs of a strengthening Chinese economy bolstered the support from geopolitical concerns, especially the growing tension on the Korean peninsula and in the Middle East.

North Korea, which has threatened war, has moved a long-range missile in readiness for a possible test launch while Iran, engaged in a dispute with Western nations over its nuclear program, said it had begun operations at two uranium mines.

However signs of growing oil stockpiles were weighing on prices, leaving Brent crude futures down 0.4 percent to $105.80 per barrel. U.S. crude fell 0.25 percent to $93.94 per barrel.

[Source: By Richard Hubbard, Reuters, London, 10Apr13]

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