Chrysler Deal Boosts Auto Stocks, Dollar Dips - World - Economy

Auto stocks rose on Monday after DaimlerChrysler said it was selling a majority stake in Chrysler for $7.4 billion, while the dollar eased.

Firmer auto shares helped offset the impact on equity markets of rising oil prices and looming U.S. inflation data, while euro zone government bonds hit multi-year lows as appetite for risk remained high.

The dollar dipped ahead of a number of speeches from Federal Reserve officials and ahead of U.S. prices data later this week, which could provide clues on whether a U.S. interest rate cut is in the offing.

U.S. stock futures were pointing to a flat start on Wall Street, with autos set to gain.

Private equity firm Cerberus Capital Management is to take an 80.1 percent stake in Chrysler, nine years after a $36 billion deal that created the transatlantic car union.

"With the Chrysler news I think people will be optimistic that, even though stocks are expensive, there are still buyers out there for these assets," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Europe's FTSEurofirst 300 was down 0.3 percent at 1,578 points by 1200 GMT, almost 20 points shy of the 6-1/2 year peak it hit a week ago.

"Sentiment is slightly complacent, everyone's been looking at five years of good growth but we're at the top and starting to slow down," said Justin Urquhart Stewart, director at 7 Investment Management in London.

"Don't expect what we've seen over the past four years to repeat themselves over the next four years. It's how low, how slow will we go."

DaimlerChrysler shares rose 3.8 percent on news of its U.S. deal, but shares in miner Rio Tinto fell 3 percent on reports it had hired Morgan Stanley to defend against a potential hostile takeover bid, rumoured last week.

CHINA CHARGES AHEAD

MSCI's All-Country World Index was 0.2 percent firmer at 396.3 points, while its Asia ex-Japan index rose 1.4 percent and hit a record high.

Hong Kong-listed China shares, known as H shares, rose more than 5 percent to a record high after Beijing relaxed rules to allow institutional investors to buy overseas stocks.

"The floodgates have opened," said Nicholas Yeo, fund manager at Aberdeen Investment.

"Markets being markets, it's racing ahead on optimism there's going to be a flood of money flowing into H shares."

The Hang Seng index also rose, closing up 2.5 percent, while China's Shanghai Composite Index edged up 0.6 percent despite a regulator's warning that it would crack down on insider trader and share manipulation.

Early stock gains sent yields on benchmark 10-year euro zone government bonds to their highest in three-years, while 2-year yields hit five-year highs as investors priced in higher interest rates from the European Central Bank. The June Bund future was down 44 ticks at 113.31 as technical support levels were breached.

HIGH-YIELDING CURRENCIES RISE

Increased risk appetite boosted high yielding currencies, with the New Zealand dollar jumping from last week's one-month low following robust retail spending data.

"A whiff of risk aversion that we saw on Friday has disappeared quickly. (Recovering stocks) boosted risk appetite marginally and speculative flows are nudging back into high-yielders," said Peter Frank, a senior FX strategist at ABN AMRO.

The kiwi dollar was up 0.9 percent at US$0.7395 having earlier closed in on a 22-year high near $0.75 hit in April.

The yen briefly edged up against the dollar after data showing Japanese wholesale prices rose more than expected in April, keeping the Bank of Japan on track for an interest rate increase later this year.

"The price data was very surprising. This was enough to fuel concerns that the BOJ may hike rates earlier than expected," said Tomoko Fujii, a senior economist and strategist at Bank of America in Tokyo.

The euro was up 0.2 percent at $1.3555, while the dollar was little moved at 120.30 yen. The euro was buying 163 yen, up 0.3 percent.

London Brent crude oil rose 50 cents to $67.33 a barrel, extending gains to a third straight session after Saudi Arabia kept supply curbs in place through June and as deliveries from Nigeria remained disrupted.