Yellen Favores Loose US Monetary Policy

By Herbert Lash

NEW YORK (Reuters) – Confirmation by incoming Federal Reserve chief Janet Yellen that the U.S. central bank’s loose monetary policy was here to stay lifted most global equity markets on Thursday, while weak euro zone data gave the dollar a boost.

Yellen told a U.S. Senate Banking Committee in prepared remarks that high unemployment, weak inflation and an economy running below potential meant the Fed had “more work to do.

Those comments sent the Dow <.DJI> and the S&P 500 <.SPX> to record highs on Wednesday, although Wall Street traded near break-even early on Thursday. Yellen’s comments also lifted European shares and spurred a broad rally in Asia, led by a 2.1 percent jump in Japan’s Nikkei <.N225>, to a six-month high.

U.S. Treasury debt prices rose as investors awaited clues from Yellen’s nomination hearing on Thursday, while spot gold prices rose almost 2 percent to extend gains for a second session.

“Today is all about Yellen and whether she stays on the dovish side,” said Jason Rogan, managing director of Treasuries trading at Guggenheim Partners in New York.

MSCI’s all-country world stock index <.MIWD00000PUS> rose 0.4 percent while, while the pan-European FTSEurofirst 300 index <.FTEU3> of leading regional shares gained 0.6 percent to 1,291.37.

The Dow Jones industrial average <.DJI> was down 9.42 points, or 0.06 percent, at 15,812.21. The Standard & Poor’s 500 Index <.SPX> was down 0.01 points, near unchanged at 1,781.99. The Nasdaq Composite Index <.IXIC> was down 11.26 points, or 0.28 percent, at 3,954.31.

Investors view Yellen, along with out-going Fed Chairman Ben Bernanke, as a strong proponent of the Fed’s current ultra-loose monetary policy. They reckon a Fed under Yellen’s leadership will continue this stimulus with the goal to lower unemployment and to raise inflation.

The euro fell as the euro zone reported weakening growth, while the dollar touched a two-month high against the yen after Japan’s finance minister said currency intervention was still a policy option.

The data showed the euro zone only just emerged from recession in the third quarter with growth of 0.1 percent, dragged down by a contraction in France.

The euro was down 0.33 percent at $1.3440 after climbing to a five-day peak of $1.3497 earlier.

The dollar rose 0.88 percent to 100.10 yen, buoyed by the comments from Japanese Finance Minister Taro Aso.

The benchmark 10-year U.S. Treasury note was up 7/32 in price to yield 2.7231 percent.

Brent crude oil rose above $108 a barrel on Yellen’s comments and on a warning from the International Energy Agency (IEA) that prices are likely to rise.

U.S. crude fell, however, pressured by expectations of a rise in U.S. inventories.

Brent for December delivery was up $1.17 to $108.29 per barrel. U.S. crude was down 74 cents at $93.14 a barrel, after settling up by 84 cents on Wednesday.

(Additional reporting by Richard Hubbard in London; Reporting by Herbert Lash; Editing by Chris Reese)

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