Silver erased early losses to rise to a fresh 2-1/2 year high at $20.00 an ounce on Tuesday, as investors returning from a US holiday bought precious metals amid concerns over the health for European banks.

Indian silver futures may extend gains for a second consecutive month and hit a new record high following a firm overseas gold market, coupled with rising festive demand, analysts said. Silver futures traded 0.26 percent higher at Rs 31,544 per kg at 5:41 p.m., falling from a record high of Rs 31,507 struck earlier in the day.

The contract had gained 7.9 percent in the previous month. “The outlook is positive in silver and would follow the foot-steps of gold,” said Pranav Mer, senior analyst with Mangal Keshav Commodities.

Gold has been on an upswing as investors sought to hedge to protect their wealth from economic uncertainties in the US, euro zone and elsewhere.

Buying could be done in silver at 30,300 for a target of Rs 32,500, said Mer. The white metal is usually influenced by gold as investors tend to treat all precious metals as one class.

But the metal also takes a cue from base metals, particularly copper, as it is partly an industrial metal used in photography and electronics. Festive demand in India could also support prices, analysts and traders said.

Demand in India, the world’s largest consumer, rises during the festive season, beginning with Raksha Bandhan in August and lasting through November with Dhanteras — the single-biggest gold buying day.
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The partially convertible rupee was at 46.78/79 per dollar, after touching 46.45 at open, its strongest since Aug. 11. It had closed at 46.53/54 on Monday. * The index of the dollar against six major currencies was up 0.6 percent.

The euro dropped sharply against the yen on Tuesday after BOJ Governor Masaaki Shirakawa’s comments that while he is watching market moves very closely, monetary authorities cannot control foreign exchange rates.

Indian shares were trading 0.3 percent higher, with financials leading the rise, extending the previous session’s rally.

One-month offshore non-deliverable forward contracts were quoted at 47, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were both at 46.9175, with the total traded volume on the two exchanges at about $3 billion.
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Energy stocks came under intense pressure after crude oil prices fell more than 1 per cent on a likely rise in crude oil inventories in the United States. Financials also lost ground on worries about a gloomier economic outlook.

The FTS Eurofirst 300 index of top European shares was down 1.1 per cent at 1,024.93 points after touching 1,021.26, the lowest since late July. With many market players on vacation, volumes were just 24 per cent of the index’s 90-day daily average. The index had closed higher on Monday, boosted by merger and acquisition news and stronger miners.

“There is a lot of scepticism ahead of data releases in a thin market. The sooner August is over, the better, and we can start to get people back in work and put some depth back into the market,” said Ian Richards, European strategist at RBS. “Expectations have become quite subdued on the macro front, and potentially there is a little bit of scope for some relief coming through. But we haven’t got a definitive signal, and I suspect the mixed picture is going to persist into the autumn.”

Upcoming economic data include Redbook’s August retail sales index of department and chain store sales at 1255 GMT and US existing home sales numbers for July at 1400 GMT. “In light volumes, it’s reacting to every bit of news, and the next economic news could be bad,” said Justin Urquhart Stewart, director at Seven Investment Management. The STOXX Europe oil and gas index was down 1.5 per cent, while BP, Royal Dutch Shell and BG Group were down 0.8 to 2.6 per cent.

MINERS, BANKS SLIDE Miners also came under pressure as copper prices fell 1.2 per cent on a stronger dollar and concerns over demand. Aluminium , nickel and zinc were also 0.6 to 2.3 per cent lower. “Whatever fire had been kicking around off the back of M&A news yesterday has certainly been extinguished,” said IG Index trader Ben Critchley.

“Losses are being sustained across the board, and miners are bearing the brunt of the sell-off.” Chilean miner Antofagasta fell 2.6 per cent after trimming its annual production target, while Vedanta Resources fell 5.7 per cent after India’s environment ministry rejected a plan by the group to mine bauxite in an eastern Indian state. BHP Billiton, Anglo American, Rio Tinto, Xstrata and ENRC fell 1.2 to 3.2 per cent. The Euro STOXX 50, the euro zone’s blue-chip index, fell 1.2 per cent to 2,628.00.

The index could find support at around 2,585 its 23.6 per cent Fibonacci retracement of a drop from an April high to a May low. Financial stocks were also among the top decliners. The STOXX Europe 600 banking index was down 1.3 per cent, while Barclays, Lloyds, BNP Paribas and Societe Generale fell 1.9 to 2.1 per cent. Shares in European cement and construction firms tumbled, hit by a profit warning from Ireland’s CRH, which sent its stock down 15.2 per cent.

HeidelbergCement was down 4 per cent, while Holcim fell 2.5 per cent to a 52-week low, continuing falls after last week’s forecast-lagging results. Across Europe, the FTSE 100, Germany’s DAX and France’s CAC 40 were all down between 0.8 and 1.2 per cent.
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The euro fell as low as 108.16 yen according to Reuters data, its weakest since July 1. The single currency’s losses accelerated after it fell under 108.22 yen,

The partially convertible rupee closed at 46.64/65 per dollar, 0.3 percent stronger than its 46.80/81 close on Monday. It traded in a range of 46.58-46.7250 during the session. “The rupee was basically tracking the euro’s moves today, stocks didn’t have too much impact really,” said Panchadev Negi, deputy manager of forex dealing at State Bank of Travancore.

The euro rose against the dollar and came off 7-week lows against the yen on Tuesday, as solid results at Irish and Spanish bond auctions helped alleviate concerns about heavily indebted euro zone countries.

The index of the dollar against six major currencies was down 0.3 percent at the time the Indian market closed. Most regional peers too rose against the dollar.

Stocks too are facing good resistance around 5,450 (Nifty) levels and there are no major inflows as well,” State Bank of Travancore’s Negi added. Shares were barely changed after moving in a tight range, with investors undecided on the outlook as global economic recovery remains hazy.

Traders monitor share moves for cues on the direction of capital flows. So far in 2010, foreign funds have invested a net $11.6 billion in local shares, in addition to last year’s record $17.5 billion investment when the rupee had risen 4.7 percent. But, due to the inconsistency of flows this year, the rupee has not appreciated much despite the inflows, dealers said.

The local unit is slightly weaker on the year. India onshore dollar premiums edged up as paying interest emerged after a sharp fall in recent sessions following weak industrial data, which had prompted investors to scale back rate hike expectations in September, when the central bank will review its monetary policy.

The one-year onshore dollar premium rose as much as 185.25 points, compared with its previous close of 175.5 points. Premiums had dropped nearly 25 points last week. “Premiums had dropped on some profit taking after the factory data and the feeling that the bearishness was more than warranted.

Now the dip from 200 points to 175 points in the 1-year onshore premiums has brought back some payers,” a senior dealer with a private bank said. One-month offshore non-deliverable forward contracts were at 46.81, weaker than the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX both closed at 46.7150, with the total traded volume on the two exchanges at about $5 billion.
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“The German economy is booming thanks to global demand,” said Andreas Scheuerle, an analyst at Dekabank in Germany. “I can see 3 percent growth this year, even a bit more than 3 percent.” The MSCI index for Asian stocks outside Japan rose more than a percent before giving up some of that gain. Germany’s remarkable growth report turned the spot light away from the yen, which shunned 15-year peaks on Friday, daunted by talk that Tokyo may intervene to curb its strength.

Swirling talk that Tokyo will weaken the yen by undertaking more quantitative easing kept the dollar off a 15-year trough of 84.72 hit on Wednesday. The retreat in the yen, which had zoomed up by as much as 3.9 percent before all the talk of intervention, mirrored similar pull-backs in other assets that were over-bought or over-sold this week when investors vexed about global growth prospects. But some analysts warned the market cheer may not last.

A raft of U.S. data including consumer confidence and consumer prices are due later, and investors fear they may disappoint. South Korea’s stock market was the best regional performer, climbing 1.4 percent from one-month lows, led by technology stocks such as Samsung Electronics. For the week however, the regional MSCI index was still down some 2.5 percent, its worst run in six weeks.

Indeed, data from EPFR showed stocks were currently not a popular investment choice, with investors preferring bonds and money market funds instead. Hong Kong stocks fell for a fourth straight session as property stocks slid late in the day, pushing the benchmark index to its worst weekly performance since early July. Stocks came under heavy selling pressure during the week as further signs of a faltering U.S. recovery and a moderating Chinese economy prompted investors to sell riskier assets and take profits from a recent rally.

The Hang Seng Index ended down 0.2 percent, taking losses for the week to 2.8 percent. The Shanghai Composite index closed 1.2 percent higher as property shares reversed earlier losses that were triggered by a central bank statement which showed a steep drop in new mortgage loans in Shanghai. Australian stocks bounced 1.3 percent higher after three days of heavy losses, as bargain-hunters stepped in to buy the beaten-down materials sector, but worries lingered about the outlook.

Global miners BHP Billiton and Rio Tinto both buoyed the market with healthy gains, rising 1.9 percent and 2.3 percent, respectively. But for the week, the benchmark Australian index still ended down 2.3 percent, the first negative week after five weeks of gains, as a swathe of data from the United States, UK and China revived worries about global economic recovery and local companies sounded cautious about the outlook. Stocks in India, Singapore and Taiwan closed less than a percent higher.

Japan’s Nikkei rose 0.4 percent, drawing support from an apparent halt in the yen’s advance against the dollar after Japanese officials stepped up their campaign against the yen’s rise with a series of comments. But the benchmark lacked clear direction, moving in and out of negative territory, as investors remained doubtful that dollar/yen moves will stabilise anytime soon.

The yen pulled back after hitting 15-year highs against the dollar earlier this week on news Japan’s prime minister and the central bank chief would meet next week to discuss the yen. The greenback traded around 85

Official data showed the German economy grew by 2.2 per cent in the second quarter dwarfing forecasts for a 1.3 per cent rise to post its biggest gain since reunification and boosting overall growth in the euro zone.

Stock prices and the euro had rallied in an initial reaction to the data, but investors quickly booked profits, reckoning that euro zone countries would struggle to maintain the pace of growth in the second half of the year.

Analysts said this week’s underlying downward trend in risk-sensitive assets was hard to dislodge after the US Federal Reserve said it would address a slowdown in the US economic recovery by picking up more Treasuries.

Investors were also unwilling to hold on to risky positions ahead of US data on consumer prices and retail sales due later on Friday.

“The broadening perception is that the strong GDP represents the peak of the bounce (in the economic recovery),” said Ashraf Laidi, chief markets strategist at CMC Markets.

He said few investors were willing to stay long on risk given that US share prices have fallen around 3 per cent so far this week on growing speculation that the pace of the global economic recovery is slowing.

By 1122 GMT, the MSCI world equity index was flat on the day, reversing gains of roughly 0.5 per cent early in the session. It hovered near a three-week low the previous day.

The euro fell 0.2 per cent to $1.2800, retreating from the day’s high of $1.2906 hit after the German data.

it fell as low as $1.2779, its weakest since late July, and on the week the single currency is on track to fall nearly 3.7 per cent.

The dollar was little changed against a currency basket, pulling back from an early slide.

S&P futures slipped 0.3 per cent while Dow Jones futures were down slightly on the day. US crude oil prices were up 0.3 per cent at $75.97, paring early gains.

German government Bund futures were up slightly at 131.33, recovering from losses in early trade.

Adam Cole, global head of currency strategy at RBC, said the strong GDP data had initially sparked some demand for riskier assets, which had tumbled earlier this week on US and global growth concerns.

He said concerns about fiscal and banking problems in countries on the euro zone periphery may weigh on the shared European currency over the medium term.

“The peripherals are still weak, and how the euro trades depends on whether the market focuses on the strong core or the weak peripherals, and the risk is they will focus on the weak,” he said.

The dollar was 0.3 per cent lower versus the yen at 85.68 yen, but hovered above a 15-year trough of 84.72 yen hit earlier this week.

The yen has pulled back slightly from those gains on speculation that Japanese authorities may act to stem its strength, but few expect actual intervention unless the dollar drops near its record low of 79.75 yen or the trend becomes more volatile.
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The euro hit a three-week low of $1.2805, with traders saying falls were accelerated after it fell through stops around $1.2830.

Options with strike price of $1.2800 set to expire later in the day. The pound fell as low as $1.5585, its weakest since July 30, with traders citing selling by a custodial ban
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The partially convertible rupee ended at 46.70/71 per dollar, off an intraday low of 46.74, its weakest since July 29 and about 0.6 per cent weaker than Tuesday’s close of 46.3950/4050. This is the unit’s biggest single-day fall since July 19.

“The euro coming down and the stock market slightly in the negative territory are risk aversion factors which are impacting the rupee,” said Paresh Nayar, head of foreign exchange and money markets at First Rand Bank in Mumbai.

The euro fell 2 per cent on the day against the dollar. The US currency, however hit a 15-year low against the yen after the Fed’s measures to bolster the fragile economy. The dollar index was up more than 1 per cent against six majors at the time of the local market’s close.

The Fed on Tuesday took a small but significant step to counter a weakening US economic recovery, saying it would use cash from maturing mortgage bonds it holds to buy more government debt.

The benchmark BSE share index fell 0.8 per cent in line with weak world markets. Foreign investors have bought $11.2 billion worth of shares so far in 2010, adding to last year’s record $17.5 billion inflows.

One-month offshore non-deliverable forward contracts were at 46.95, weaker than the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX ended at 46.82 on both exchanges, with the total traded volume on the two exchanges at a high $4.8 billion.
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“Import growth is weaker than expected, indicating that China’s investment is slowing,” said Eliza Liu, macroeconomist with CCB International Securities in Beijing. Chinese exports beat forecasts last month but imports were lower than expected. Talk of possibly higher-than-expected inflation, which could persuade the authorities to keep policy tight despite slowing economic growth, also weighed on sentiment. “The market is pricing in that CPI could be higher than the expected 3.3 per cent, prompting concerns of tighter policy in the coming months,” said Xu Yinhui, analyst at Guotai Junan Securities in Shanghai.

The weak mainland market dragged Hong Kong shares 1.5 per cent lower. Foxconn Holdings slumped 5 per cent and was the top loser on the index. Foxconn shares are top Hang Seng decliners this year, down over 35 per cent. China Construction Bank Corp fell 3 per cent. PetroChina Co Ltd retreated 2.4 per cent as weaker oil prices also weighed. The MSCI index of Asia Pacific stocks outside Japan fell about 1.4 per cent to its lowest in four trading sessions after hitting a three-month high on Monday.

Japan’s Nikkei average edged 0.2 per cent lower in thin trade, turning negative after the Bank of Japan left rates unchanged and Chinese stocks fell. The Bank of Japan kept interest rates steady and held off on new policy steps, saving its limited policy options for when rises in the yen accelerate enough to damage a fragile economic recovery. Investors are now waiting to see if the Fed will consider or embark on new policy steps, with speculation rife that it may signal the chance of further monetary easing and possibly drive the yen towards its all-time high above 80 yen to the dollar.

“If the Fed takes steps to lower interest rates, given that the BOJ did nothing, that could lead to a higher yen, which is one reason the market has fallen this afternoon,” said Hideki Horikawa, a senior adviser at Himawari Securities. “I myself think they still don’t need to do anything yet, but I’d guess that probably about 60 per cent of people in the market are expecting them to make some kind of move.” The dollar rose as traders trimmed short positions, awaiting the result of the Fed’s policy meeting.

The yen was the exception to the dollar’s broad rebound as it edged up against the greenback. Some exporters lost ground as the dollar slipped against the yen, with Sony Corp, Advantest Corp and Panasonic falling. But Honda edged up 0.3 per cent. The company plans to reduce its Japanese car production by 4 per cent in October compared with the July-September quarter, in what would represent a small impact from the end of government subsidies to stimulate demand.

Australian stocks dropped 1.2 per cent, the biggest decline in three weeks, after a subdued outlook from National Australia Bank cast a pall over prospects for the corporate earnings season. NAB finished down 2 per cent after it posted a 22 per cent rise in third-quarter cash earnings, below analyst forecasts, and warned that demand for business credit was weak. “Wading into reporting season domestically, there will be a huge amount to dissect over the next 10 days,” said RBS Australia head of Sydney sales trading Justin Gallagher.

“The outlook statements will be particularly important and we have seen how brutal the market is with anything that falls short of expectations,” he said. South Korean shares fell half a per cent after recent gains pushed the main index to its highest level this year, as North Korea’s artillery firing and China’s lower-than-expected import growth weighed on sentiment. North Korea fired a barrage of artillery shells on Monday, some reportedly landing in South Korean waters, adding to already heightened tension on the peninsula.

Taiwan stocks fell 0.7 per cent in their worst one-day per centage slide in six weeks, amid concern that tech exporters including Chimei Innolux are facing slowing demand. Shares in Singapore and India lost less than half a per cent. Gold prices eased below $1,200 an ounce as the dollar strengthened, but remained supported by uncertainty ahead of the monetary policy meeting of the Fed later in the day. Oil dropped a dollar to below $81 a barrel, sapped by hints of weaker demand for fuel in the world’s top energy users and a strengthening dollar.
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