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An aerial view of The Palm Island Jumeirah in Dubai - Source: Reuters -
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Worries about Dubai's debt slipped away from financial markets,
sending stocks up sharply higher and weakening lower-yielding
assets such as long-term government bonds and the dollar.
Wall Street looked set for a solid start as global equities
rebounded from recent weakness.
The catalyst was an announcement late on Monday from Dubai World,
centre of the debt storm, that its planned restructuring of some
units involved $US26 billion in debt, easing some concerns about
the size of Dubai's financial problems.
MSCI's all-country world stock index was up one percent while its
emerging markets counterpart gained more than one percent.
"The market is acknowledging that the Dubai crisis is contained to
the region itself," said Heino Ruland, strategist at Ruland
Research, in Frankfurt.
European shares bounced back from Dubai-triggered falls in the
previous session. Th FTSEurofirst 300 was two percent higher,
having fallen 1.4% on Monday.
Banks were among the strongest gainers, having been hit by fears of
exposure to possibly defaulting Dubai debt.
The crisis hit last week when Dubai told creditors of Dubai World
and property group Nakheel that debt repayments could be
delayed.
The fear added to investors' desire to lock in some of 2009's
market profits ahead of the new year.
Reuters polls released showed global investors cutting back on
riskier assets even before the Dubai announcement.
Yen falls on BOJ
The return of relative risk appetite drained the dollar of support,
sending it down half a percent against a basket of major
currencies.
Much attention on the currency markets, however, was focused on
Japan where the Bank of Japan fell short of expectations for more
aggressive easing measures to support the economy.
It said it would introduce a new operation to provide funds for
three months at a fixed interest rate of 0.1%, in a bid to enhance
monetary easing by trying to bring down longer-term rates.
The dollar was up three-quarters of a percent at 87.53 yen, having
hit a 14-year low of 84.81 yen last week.
The Euro rose 0.9% against the Japanese currency.
"The message is that the BOJ isn't completely indifferent to
currency rates, and this should at least be marginally
yen-negative," said Adam Cole, global head of currency strategy at
RBC.
Longer-dated euro zone government bond prices fell as stocks rose
and the Dubai worries waned.
