* Trade growth eases fears over slowdown in China
* Wall St rebounds after three days of declines
* Treasury yields hit lowest in a week
* Dollar at 7-week lows on Fed tapering bets
By Leah Schnurr
NEW YORK, Aug 8 (Reuters) – The dollar fell to a seven-week
low on Thursday, while bond yields declined as investors
reversed trades that had been fueled by speculation of when the
Federal Reserve will start to remove its stimulus.
U.S. stocks pushed higher in a choppy session, drawing some
support from Chinese data showing a surprisingly strong rise in
exports and imports in July. The trade data eased fears that a
slowdown in the world’s second-largest economy would threaten
the improving outlook in Europe and the still-fragile U.S.
recovery.
Equities on European and other stock markets also gained.
Investors remain focused on gauging when the Fed will start
to reduce its $85 billion in monthly asset purchases, which have
been a major driver of the rally in equities this year.
While the possibility of a reduction in bond buying would
typically push Treasury yields higher, yields fell to their
lowest level in a week on Thursday, driven by technical trading
in what is typically a time of lower volume in the market.
Ten-year U.S. Treasury notes were up 6/32 in
price to yield 2.5856 percent. The 10-year yield hit 2.573
percent earlier, the lowest level since July 31, according to
Reuters data.
The prospect of the Fed buying fewer bonds by the end of the
year has made investors rethink some of the trades that were
built around the lower rates and excess liquidity that resulted
from the program.
Although most analysts expect the dollar will resume gains
toward the end of the year, uncertainty about when the Fed may
act kept the currency under pressure as investors unwound some
cross-asset trades. Fewer participants in the market as the
summer winds down also exacerbated moves.
Substantial selling in the bond market has ebbed since the
U.S. government reported July jobs data that fell short of
expectations. Prices have risen and yields, which move inversely
to price, have climbed as some funds cover short trades that
generally involved buying Japanese stocks and shorting the yen
and the Treasury market.
“We expect that as the Fed moves toward tapering, with
September our base case … the dollar will retrace some of this
lost ground and most currencies will weaken into year-end,” said
Camilla Sutton, chief currency strategist at Scotiabank in
Toronto.
Some Fed policymakers suggested this week that the U.S.
central bank could scale back on bond purchases as soon as
September. But a reduction will depend on continued improvement
in the jobs market.
The dollar languished at seven-week lows against other major
currencies, with the dollar index dropping 0.4 percent,
while the euro rose 0.3 percent to $1.3382.
“To us the price action today smells a bit like final
capitulation in poor summer liquidity, as there are few obvious
catalysts for the move,” wrote analysts at Nomura.
Stocks on Wall Street were higher, breaking three days of
declines as tech stocks led the way up.
The Dow Jones industrial average gained 47.42 points,
or 0.31 percent, at 15,518.09. The Standard & Poor’s 500 Index
was up 8.34 points, or 0.49 percent, at 1,699.25. The
Nasdaq Composite Index was up 19.87 points, or 0.54
percent, at 3,673.88.
“We’re in the season when trading volume is low and
volatility is low, and there is not much real catalyst to move.
In this kind of a day, a few big players could move the market
up and down,” said Randy Frederick, managing director of active
trading for Charles Schwab in Austin, Texas.
European shares on the FTSEurofirst 300 closed up
0.4 percent as Chinese trade data lifted mining shares. MSCI’s
world equity index rose 0.6 percent.
Data showed the number of Americans filing new claims for
jobless benefits rose slightly last week but was still near its
lowest level since before the 2007-09 recession.
Oil investors overlooked the Chinese data, sending crude
prices lower as traders liquidated long positions and followed
gasoline futures prices lower. Brent crude fell 87 cents
to $106.57 per barrel, while U.S. crude dropped $1.07 to
$103.30.
