GLOBAL MARKETS-Shares set for second best week of year, Cyprus weighs on euro

Last Updated: Fri, Apr 12, 2013 12:20 hrs

* Shares fall as investors book profits

* Dollar near four-year high vs yen, eyes 100 yen

* Euro falls 0.4 pct as finance ministers discuss Cyprus

* Wall Street set to open down, retail sales in focus

By Marc Jones

LONDON, April 12 (Reuters) - World shares dipped on Friday as investors locked in profits at the end of what was set to be the second best week of the year so far for stocks, while the dollar held near a four-year high against the yen.

A radical monetary stimulus plan from the Bank of Japan (BOJ) and signs of a growing recovery in China have spurred a near 3-percent jump this week in the MSCI world share index and has sent the yen tumbling.

As investors booked some of those equity gains, a small pull-back in Asian shares was echoed in Europe, where there were also concerns that Cyprus could require more bailout money as the region's finance ministers met in Dublin.

U.S. stock futures pointed to a softer end to the week for Wall Street, too, following the record highs set by the S&P 500 and Dow Jones Industrial in recent sessions.

Focus will be on March retail sales due at 1230 GMT as well as the readout from the earnings of JP Morgan and Wells Fargo, the fourth biggest U.S. bank by assets.

But with the euro zone's finance ministers meeting in Dublin on Friday and Saturday to discuss the bloc's troubles and worries U.S. that retail figures could undershoot after a recent rash of downbeat data, the four-day rally in world shares appeared to have run out of the steam.

The pan-European FTSEurofirst 300 was down 0.6 percent at 1200 GMT as losses on London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX stretched to 0.4, 1.0 and 1.4 percent respectively.

It pushed the MSCI world index down 0.3 percent on the day but the stellar run by Japanese stocks and the climbs by U.S. equities left that measure up by 2.7 percent on the week, its biggest rise since the first week of the year.

"What is going on in Dublin and the discussions on Cyprus are playing a role and now the market is waiting for the U.S. data, especially the retail sales are figures," Rabobank strategist Philip Marey said of the downbeat mood in Europe.

"We saw a very poor non-farm payrolls report last week and so if retail sales are bad again it will bring back the fear that the U.S. economy has slowed down."


Euro zone jitters were also seen in the currency market, where the euro was down 0.4 percent at $1.3055 and on track for its biggest daily decline in over two weeks.

Luxembourg's finance minister said that Europe and the International Monetary Fund could not increase their 10-billion euro ($13 billion) contribution to Cyprus's rescue, but economists worry that more support may be required.

The main focus, however, remained the weakness of the yen . The BOJ last week pledged to inject about $1.4 trillion into the economy to end a long phase of deflation and its move has seen the Japanese currency slump to long-term lows.

Governor Haruhiko Kuroda said on Friday that the central bank had taken all necessary steps to meet its two-year, 2-percent inflation target and would try to minimise the market disruption from its massive bond-buying. The yen showed little reaction to his comments.

As U.S. trading gathered pace, the dollar, which has gained about 7 percent on the yen over the past week, was continuing to back away from recent highs at 99.25 yen, while the euro was buying 129.67 yen.

"We are seeing some profit-taking this morning. Also dollar/yen has gone too high, too fast, so we are seeing some pull-back," said Morten Helt, senior FX analyst at Danske Bank.

"Nevertheless we see dollar/yen trade higher and eventually hitting that magic 100 mark."


Bond markets were also eyeing the informal EU finance ministers meeting in Dublin.

Reuters obtained documents this week revealing Cyprus may have to contribute more than initially thought to its rescue package, including selling some of its gold.

EU officials said on Friday Cyprus was also considering using EU structural funds to help its stricken economy but denied it was asking for a bigger bailout.

U.S. Treasuries gained and German Bund futures climbed 50 basis points to 145.74 as investor caution crept back after what has been a better week for higher-yielding euro zone periphery debt following last week's Cyprus-linked sell-off.

Whereas Japan's radical stimulus promise has fuelled the latest leg in a near year-long rally in world stocks, growth-attuned commodities appear to becoming increasingly disconnected from the trend.

Gold, an inflation hedge which investors would normally expect to benefit from the kind of rapid money-printing being announced in Japan, was on course for its third weekly decline on Friday as it steadied at $1543.20 an ounce.

Oil also struck a new eight-month low, slipping below $103 a barrelŸ as nervousness about conflicts involving Iran and North Korea undermined any resistance to a sell-off that was mainly pegged on concerns over slowing crude demand.

Tokyo's Nikkei has jumped more than 10 percent this week alone and has led the rise in world markets in recent months as the BOJ's aggressive stance has emerged.

Reuters data show the difference in underlying values of stock markets and key commodity prices is now the biggest in over a year: "We are a bit concerned about equities now," said KBC economist Piet Lammens. "We see the divergence between equities and commodities is growing.

"We started to disconnect somewhere in mid-November and since then stocks have continued to go up and up but it is not followed anymore by commodities, which might mean that equities are moving away from economic fundamentals."

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