Friday August 14, 7:01 am Eastern Time
FOCUS-Yeltsin soothes Euro stocks, outlook mixed
(Updating at midday)
By Richard Baum
LONDON, Aug 14 (Reuters) - Wounded European stocks drew comfort from big gains in
Russian and Hong Kong markets and hopes for a rally on Wall Street to move higher on
Friday, but concern shares have further to fall persisted despite four weeks of losses.
Russian President Boris Yeltsin's vow not to devalue the rouble soothed a fear that routed global markets on Thursday, giving
traders a temporary respite from worries that emerging market problems will trigger a global economic slowdown.
The anticipated U.S. rally ''will be a welcome relief but no-one believes this is the end of the correction,'' said a trader of U.S.
stocks in London.
A strengthening of the yen on increased expectations of Japanese intervention contributed to the calmer mood, despite Tokyo
stocks falling on lingering worries about Japan's banking system and an overnight fall in U.S. stocks. Bonds weakened as
demand for safe haven investments fell.
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MARKET PRICES AT 1057 GMT
MARK 1.7899/79 YEN 144.85/90 STERLING 1.6246/56
GOLD $285.00/285.50 +1.85 (pvs PM fix) BRENT $12.05 -0.04
FTSE 5490.3 +90.80 CAC 4,016.59 +64.90 X-DAX 5459.18 +104.15
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Share trading was nervous amid continuing fears of a global equity sell-off and before the release of U.S. producer price data at
1230 GMT.
At 1140 GMT, London's FTSE 100 share index was up 1.5 percent, the German DAX index rose 1.9 percent and the CAC
40 in Paris was up 1.6 percent.
All other leading European stock indexes also rose, led by a 2.7 percent advance in Copenhagen.
U.S. stock futures, closely watched by European traders for an indication of the outlook for Wall Street, were 0.9 percent
higher. Dealers expected the Dow Industrials to open 50-60 points higher after a 93 point fall on Thursday.
Among the biggest risers in Europe were banks, whose loans to Asia and Russia would be hit by devaluations. There were also
further advances by oil shares in the wake of British Petroleum Co's merger this week with Amoco.
But the gains were small in the context of recent losses. Since reaching all-time highs four-weeks ago, the FTSE and DAX have
fallen more than 12 percent and the CAC almost 10 percent. The Dow, which has led the bull market for three and a half
years, has given up 9.7 percent.
Friday's rally came on the coat-tails of an 8.5 percent advance in Hong Kong stocks and a 7.2 percent gain in Russia. Both
markets slumped on Thursday as investors focussed on devaluation risks.
Yelstin's defiant response to a call on Thursday by international financier George Soros for a devaluation appeared to pacify the
markets, at least for now.
''There will be no devaluation -- that's firm and definite,'' the president told reporters.
After one of their blackest days on Thursday, Russian markets recovered some of their poise as yields on short-term GKO
treasury bills narrowed markedly.
But the rouble was quoted at 6.37 to the dollar, well outside the central bank's trading mini-band.
The turmoil in Russia's markets is due to Prime Minister Sergei Kiriyenko's failure to convince investors he can pull the country
back from financial collapse, analysts say.
''Basically there is no confidence...in the Russian government being able to pursue and push very hard its anti-crisis measures,''
said Caren Gaboutchian, an economist at ING Barings.
Devaluation talk also cooled in Hong Kong, where the firmer yen helped lift the market off a five-year low.
The Hong Kong Monetary Authority said it intervened in the stock and futures market to foil speculators.
Hong Kong Financial Secretary Donald Tsang said the government would intervene in the markets if the Hong Kong dollar
came under repeated attack, and the government had ample resources to defend the currency.
Speculative attacks on the Hong Kong dollar and fears that China would devalue its currency to keep its exports competitive
have raised the prospect of a new round of devaluations across Asia.
That would hurt export markets for European and U.S. companies and increase competition from imports in their domestic
markets.
A slight strengthening of the yen in recent days has eased the pressure for competitive devaluations, and the currency continued
to firm on Friday.
Japan's top financial diplomat Eisuke Sakakibara said he discussed currency issues in a meeting with Prime Minister Keizo
Obuchi, but declined to say if they discussed the possibility of currency intervention.
Earlier he said Japan was looking for a chance to intervene and boost the yen.
The prospect of intervention lifted the yen to 144.88 to the dollar from 145.13 on Thursday. Sakakibara said he thought the
yen had hit the bottom at 147 and was now rebounding.
''The market's just so nervous, this being Friday,'' said Dave Eddy, chief foreign exchange trader at Sumitomo Bank in
London. ''Sakakibara may have been hoping that with the dollar coming off as worries about Russia ease, it might be a good
time to follow this up (with verbal intervention).''
Bonds eased as the yen's gains helped to dry up some of the safe-haven flows that propelled debt prices to record highs this
week. U.S. Treasuries, German Bunds and British gilts were all a touch weaker.
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