GLOBAL MARKETS-Investor caution halts share rally, dollar softens

Tue Nov 19, 2013 4:32am EST

* World share gains pause after sharp rally

* Worries over timing of Fed taper resurface

* European markets eye ZEW index for direction

* Copper, silver at 3-mth lows, oil eases

By Richard Hubbard

LONDON, Nov 19 (Reuters) - World shares edged back from near six-year highs on Tuesday amid investor concerns that the latest rally may have been overdone, while optimistic comments about the U.S. economy helped limit the dollar's losses.

Caution swept the equity markets after U.S. billionaire investor Carl Icahn voiced the fears of many investors when he warned that share price gains had outpaced the underlying improvement in the global economy and could be set for a fall.

"It has been one the most hated rallies in equities in history, I would say, and Carl Ichan's words have pushed things a little to the downside," said Brenda Kelly, IG Markets analyst.

But despite the fears of a big downward correction in prices, investor sentiment remains well supported by the loose monetary policies of global central banks and expectations that the Fed will keep printing money well in to next year.

In Europe, where the broad FTSEurofirst 300 index fell 0.4 percent in early deals, investors were looking ahead to the latest reading of German economic sentiment and updated global economic forecasts from the OECD, for a guide to trading.

Germany's ZEW sentiment index is expected to climb further in November despite lacklustre growth data from around the euro zone last week, though a strong number may not be enough to shake market worries about the current high share values.

"Pan-European multiples are close to multi-year highs. That means markets are no longer cheap and we need to see some earnings improvement to warrant higher equity prices," said Gerhard Schwarz, head of equity strategy at Baader Bank.

Earlier, optimism sparked by China's bold economic reform plans had continued to bolster Asian markets, lifting MSCI's index of Asia-Pacific shares outside Japan by 0.1 percent to add to Monday's 1.4 percent rally.

DOLLAR FINDS FED FRIENDS

The dollar remained softer on Tuesday on talk that the U.S. central bank could keep its easy policy stance until March next year, though some optimistic comments on the economy by two top Fed officials curbed its losses.

William Dudley, president of the Federal Reserve Bank of New York and one of the staunchest supporters of the Fed's easy-money policies, cited labour market improvements and stronger-than-expected growth in the third quarter as positive signs for the U.S. economic recovery.

Despite those comments, the dollar index, a measure of the greenback against six other currencies, was down 0.15 percent at 80.69, and not far from Monday's low of 80.565. Against the yen, the dollar fell 0.3 percent to 99.70 yen.

The euro was firmer at $1.3515, having hit a 12-day high of $1.3542 on Monday, extending its recovery after a sharp drop to two-month low of $1.3295 on Nov. 7 in the wake of the European Central Bank's surprise rate cut earlier this month.

Ahead of the ZEW report, euro zone government bonds were broadly steady with 10-year German yields flat at 1.69 percent, while lower-rated Spanish and Italian yields were also little changed.

In commodity markets, prices were under pressure from the renewed concerns over when the U.S. Federal Reserve would begin to taper its monetary stimulus, with copper sliding to a new three-month low, down 0.66 percent at $6,929 a tonne.

Gold was mostly flat at around $1,275 an ounce after dropping 1.2 percent on Monday, though silver had edged to a fresh three-month low of $20.30 an ounce.

Brent oil had slipped to near $108 a barrel amid the Fed worries but its was gaining support from continuing oil supply disruption in Libya.

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