Euro falls on potential ECB rate cut, global stocks slip anew

By Herbert Lash

NEW YORK (Reuters) - Global equity markets slipped on Friday despite upbeat factory data worldwide, while the euro fell to a two-week low against the dollar on expectations that a rate cut by the European Central Bank is possible by the end of the year.

Stocks on Wall Street edged lower after data showing U.S. manufacturing expanded briskly in October raised some worries that the U.S. Federal Reserve may scale back its massive stimulus much sooner than expected.

U.S. equities have been pressured since a Fed statement on Wednesday raised concerns about when the central bank would begin to scale back its stimulus program, which has fueled the benchmark S&P 500 index's 23-percent rally this year.

The Institute for Supply Management (ISM) said its index of U.S. factory activity rose to 56.4 last month - its best showing since April 2011 - from 56.2 in September. Economists polled by Reuters had expected a reading of 55.

The S&P and Dow Jones industrial average have repeatedly hit record highs this year, including earlier in the week, but the strong gains have triggered some concerns about how much further the rally can continue, especially in light of tepid corporate revenue growth.

With almost three-fourths of S&P 500 companies reporting results so far, 68.5 percent have beaten profit expectations, above the long-term average of 63 percent, according to Thomson Reuters data. However, only 53.3 percent have topped revenue forecasts, below the 61 percent average since 2002.

"I'm not comfortable with the market at all-time highs, especially with earnings being mediocre," said Mark Grant, managing director at Southwest Securities in Fort Lauderdale, Florida.

"But the manufacturing report was better than expected, and where else can you go with the Fed putting so much liquidity into the system?" Grant said.

The Dow Jones industrial average was up 30.57 points, or 0.20 percent, at 15,576.32. The Standard & Poor's 500 Index was down 0.28 points, or 0.02 percent, at 1,756.26. The Nasdaq Composite Index was down 7.57 points, or 0.19 percent, at 3,912.13.

European stock markets eased off five-year highs amid signs of weakness in regional corporate earnings.

The pan-European FTSEurofirst 300 index of leading European companies fell 0.31 percent to close at 1,288.67.

U.S. Treasuries prices fell for a third consecutive session as the encouraging ISM report on manufacturing suggested the U.S. economy overcame a drag from the partial government shutdown in October.

The rosier data revived some worries among investors that the Fed might scale back its bond-buying earlier than expected - at its December meeting - rather than early in 2014.

"There is a feeling that they might taper in December. It has gained a little steam, but that's not the consensus," said Matt Duch, a portfolio manager at Calvert Investments in Bethesda, Maryland.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.6108 percent.

Euro zone bonds broadly edged higher, extending this week's rise, after data showed a surprisingly sharp inflation slowdown in the euro zone. Many in the market expect the ECB to signal a rate cut or new liquidity injections at its meeting next week.

German two-year yields, the most sensitive to shifts in monetary policy expectations, were 1 basis point lower at 0.11 percent,

Bund futures fell 15 ticks to settle at 141.85, having hit a two-month peak of 142.32 on Thursday.

Expectations of an ECB rate cut was seen eroding the euro's interest rate advantage over other major currencies. The single currency was poised to notch its worst weekly loss against the dollar since July 2012.

The euro fell 0.74 percent to $1.3482.

Renewed pressure on the euro saw the dollar index rise to a six-week high of 80.785, climbing further up from a nine-month trough of 78.998 plumbed a week earlier. It last traded at 80.777.

The dollar was up 0.43 percent against the yen at 98.77 yen, according to Reuters data.

Brent crude oil dropped by more than $2 to below $107 a barrel as a strong dollar outweighed previous concerns over a drop in Libyan crude exports.

Brent crude for December delivery was down by $2.14 at $106.70 after rising as high as $109.41 a barrel in early trading.

U.S. oil for December was down $1.37 at $95.01, putting it in line for a fourth straight week of declines, its longest losing streak since June 2012.

(Reporting by Herbert Lash; Editing by Bernadette Baum)

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New China H7N9 bird flu cases 'signal potential winter epidemic'

By Kate Kelland

LONDON (Reuters) - Fresh human cases in eastern China of a deadly new strain of bird flu signal the potential for "a new epidemic wave" of the disease in coming winter months, scientists said on Thursday.

The strain, known as H7N9, emerged for the first time in humans earlier this year and killed around 45 of the some 135 people it infected before appearing to peter out in China During the summer.

But a new case in October in a 35-year-old man from China's eastern Zhejiang province shows that the virus "has re-emerged in winter 2013" and "indicates a possible risk of a larger outbreak of H7N9 this winter," according to Chinese researchers writing in the online journal Euro surveillance.

Flu experts around the world have been warning that despite the marked drop off in cases during the summer months, the threat posed by H7N9 bird flu has not passed.

Ab Osterhaus, a leading virologist based at the Erasmus Medical Centre in the Netherlands who has been tracking the virus, told Reuters earlier this month: "We're bracing for what's going to happen next."

The first scientific analysis of probable transmission of the new flu from person to person, published in the British Medical Journal in August, gave the strongest proof yet that it can jump between people and so could potentially cause a human pandemic.

And another study published in August identified several other H7 flu viruses circulating in birds that "may pose threats beyond the current outbreak".

Map of H7N9 human cases http://link.reuters.com/vaq93v

In a detailed analysis of the 35-year-old man's case, scientists from the Zhejiang Provincial Centre for Disease Control and Prevention said it differed from previous ones in that it was a severe case in a younger patient "with no obvious underlying diseases and no obvious recent direct contact with live poultry".

Most laboratory-confirmed cases in the past had been people over the age of 60, many of whom said they'd had recent exposure to poultry, generally at live bird markets.

The case of the 35-year-old man, plus another H7N9 infection confirmed just a day ago, suggest the virus "has apparently continued to circulate in an animal reservoir during the summer", the researchers said.

The second October case is a 67-year-old man with no underlying disease whose work included transporting and selling poultry.

The researchers said that based on China's experience in the spring, when there were 30 cases in March and 88 in April, the best approach now would be to maintain enhanced and expanded surveillance in human and animal populations to make sure any new cases of H7N9 are picked up and diagnosed swiftly.

"In particular, enhanced surveillance in poultry would be helpful if it can identify the H7N9 virus and inform early control measures before human infections occur," the Chinese scientists said.

"Hygiene campaigns and closure of live poultry markets can reduce the risk of severe cases and deaths." (Editing by Philip Barbara)

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