LONDON (Reuters) – A flight from emerging market debt and stocks helped push the dollar to a two-year high against major currencies on Thursday as fears builtabout a global recession.
A call center personnel presses her hand to her forehead at an online brokerage company in Tokyo October 23, 2008
Investors were also focusing on major company earnings reports, fearful that the worst financial crisis in 80 years and the deteriorating global economy could combine to batter corporate profits.
European shares put in gains on the back of some positive results, but Asian shares fell to four-year lows and emerging markets were again under the gun.
MSCI's main emerging market stock index was down 3.3 percent on the day, hitting a nearly four-year low after major losses on Wednesday.
Emerging market sovereign debt spreads blew out to more than 800 basis points over U.S. Treasury yields, a gap not seen since late 2002.
The cost of insurance against sovereign debt default in countries such as South Korea, Indonesia, the Philippines, Russia and Kazakhstan has soared over the past two days.
"There is now little argument that the world economy will experience a period of sub-par growth, and a recession in several advanced economies looks increasingly likely," Goldman Sachs said in a research note.
Investor flight from emerging markets over the past few weeks has accelerated this week, pushing the U.S. dollar to new heights, among other things as money is both repatriated from overseas and seeks relative safety in U.S. fixed income.
The dollar hit a two-year high against a basket of currencies with the dollar index up 0.2 percent to 85.6 after hitting a two-year peak above 86.
The euro slipped 0.3 percent from late U.S. trade to $1.2817.
"We are going to see the current pressures continue as tensions in emerging markets continue. The dollar will remain supported and the high yielders will stay under pressure," said Ian Stannard, FX analyst at BNP Paribas.
EARNINGS IN SIGHT
European shares staged a mild recovery in choppy trade, helped by surprisingly strong results from some heavyweights, which helped shake off the effects of falls on Wall Street and Asia.
The FTSEurofirst 300 index of leading European shares was up 0.4 after falling 5.4 percent on Wednesday and 42 percent this year.
Nestle, the world's biggest food group, reported a forecast-beating rise in nine-month sales. Agrochemicals and seeds group Syngenta also reported a strong rise in third-quarter sales.
Other major European companies scheduled to release earnings later included Daimler and Carrefour.
In the United States, technology bellwether Microsoft will release quarterly results alongside drugmakers Eli Lilly and Bristol-Myers Squibb as well as Dow Chemical and mail and logistics group United Parcel Service.
Earlier, Japan's Nikkei average hit its lowest point since May 2003 before paring losses to end down 2.5 percent. It shed 213.71 points to 8,460.98 after earlier falling as low as 8,016.61, its lowest in nearly five and a half years.
The broader Topix ended the day down 2 percent at 871.70 after earlier falling more than 6 percent.
Euro zone government bond yields were unchanged to slightly firmer. The two-year Schatz yield was 2.838 percent and 10-year Bund yields were 3.826 percent.
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