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. Last Updated: 07/27/2016

Euro Firms as Stocks Inch Up




LONDON -- The euro gained across the board Tuesday after Bundesbank President-designate Ernst Welteke said $1.08 was an appropriate reference rate for the currency.


It was also boosted by renewed hopes of a resolution to the Kosovo conflict and stronger than expected first-quarter German growth figures, traders said.


But European shares could only manage slim gains after Wall Street went into reverse on interest rate worries.


David Bloom, currency strategist at HSBC Markets, said: "Welteke's remarks were a catalyst. You add them to two sets of numbers in a row that are positive for Germany and you have the concoction for a nice little bounce on the euro."


The euro ended European trade at around $1.044 compared with $1.029 late in Europe on Monday when it made a lifetime low of $1.0254.


Germany's Federal Statistics Office said gross domestic product grew 0.4 percent in the first quarter from the previous quarter when it contracted by 0.1 percent. The return to modest growth had been expected and followed larger-than-expected German industrial orders numbers Monday.


The agreement between Group of Seven and Russian foreign ministers on a draft UN resolution to end the war in Kosovo also helped the euro to rally, said Nick Shamim, bond and currency strategist at Norinchukin International in London.


"Finally G-8 have accepted the proposal and the market has had a bit of a short squeeze," Shamim said. "It has taken out quite a few stops and the risk is of a short covering rally to $1.0550 or $1.06."


From there, he expected the euro to sag again.


While European share markets closed mostly firmer, they were knocked off their session highs when Wall Street fell 0.6 percent in early trade as shares in computer makers fell.


Shortly after London share trading closed Wall Street was down around 0.8 percent, ceding most of Monday's gains.


Overall sentiment was also weak with many traders sidelined ahead of Friday's release of the U.S. May Producer Price Index and retail sales to see if inflation has been creeping into the world's No. 1 economy as many have worried.


In London, Europe's largest stock market, the FTSE 100 index closed 0.3 percent higher, its seventh straight advance and the longest winning streak since an eight-session rise at the end of March. Telecommunications and drug stocks contributed much of the rise.


In Paris, media shares surged on a hesitant Paris market that closed a touch higher in thin volumes.


Germany's Xetra DAX ended 0.3 percent lower having been up around 0.4 percent for most of the afternoon before Wall Street opened weakly and dimmed sentiment.