* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Sweden ends five years of negative interest rates
* Pound recovers after 3% battering
* Stocks groggy after week's record high
By Joice Alves
LONDON, Dec 19 (Reuters) - Bond yields rose and Sweden's
crown stayed ice cool on Thursday as the country became the
first to raise interest rates out of sub-zero territory, while
world stocks drifted off this week's record highs.
It was a packed day of central bank action all round. While
Sweden made its big move, Norway sat tight on rates, and
sterling pulled out of a dive even as two Bank of England
policymakers pushed for a UK interest rate cut.
Stock markets stalled, however, after their rapid recent
run-up and with a record-high Wall Street now facing the
complexity of U.S. President Donald Trump's impeachment in
Washington. Wall Street futures ESc1 pointed to a subdued start .N ,
while the pan-European index STOXX 600 STXEc1 continued to dip
in and out of the red, although Britain's blue-chip FTSE index
.FTSE did manage to hold a 0.2% rise. .EU
Asia has also pulled back from a 1-1/2 year peak.
The focus remained on the day's big milestone - Sweden
ending five years of negative interest rates. The crown stayed
calm after the move, rising as much as 0.2%.
Bond yields rose across Europe though, with those in
higher-rated countries such as Germany, France and the
Netherlands up 3-4 bps on the day FR10YT=RR NL10YT=RR .
Germany's benchmark 10-year bond yield rose to -0.212%
DE10YT=RR , a new six-month high, pushing past a peak touched
on Friday.
Economists now wonder how Sweden's open economy will react
and whether other central banks with sub-zero rates in the euro
zone, Japan, Denmark, Switzerland and Hungary will consider
following suit.
"This market doesn't look at macro and earnings, it just
looks at monetary developments," said Stéphane Barbier de la
Serre, macro strategist at Makor Capital Markets, referring to
the huge role low interest rates have played in driving asset
prices higher over the last decade.
"If the market thinks central banks (globally) are done with
being dovish then we would see some volatility," he added.
Commerzbank said Sweden's hike showed it was throwing "in
the towel in a state of exasperation" at the impact of negative
rates, and "neither because the economy is doing so well (on the
contrary: the PMI is in free fall) nor because inflation
justified (it)".
POUND REBOUND
The British pound also gained after suffering heavy losses
this week as concerns have returned that Britain could still
crash out of the European Union without a trade deal in place
when a transition period ends in December 2020.
Sterling GBP=D3 rose 0.2% to $1.3104 after falling more
than 3%. It had reached an 18-month high on Dec. 13 after UK
Prime Minister Boris Johnson's Conservative Party won a majority
in a general election.
Against the euro, it stood at 84.99 pence EURGBP=D3 , close
to its weakest since Dec. 4. /FRX British inflation remained
at a three-year low in November, data had showed on Wednesday.
The Australian dollar jumped by 0.3% to $0.6879 after
better-than-expected labour-market data made interest rate cuts
less likely. The yen JPY=EBS barely moved from 109.58 per
dollar after the Bank of Japan kept its quantitative easing in
place and issued a gloomier assessment on factory output.
In Asia overnight, Japan's Nikkei .N225 fell 0.3% and
China's stocks slipped .CSI300 for the second session despite
trade optimism. Australian shares .AXJO ended 0.3% lower, led
lower by mining stocks.
Investors were also watching proceedings in Washington,
where the Democratic-led House of Representatives voted to
impeach Trump for abuse of power and obstruction of Congress.
Market reaction was limited, since the Republican-controlled
Senate is very widely expected not to remove Trump from office.
In commodities, Brent crude LCOc1 was up 0.1% to $66.26
per barrel. U.S. crude CLc1 also gained 0.04% to $60.97 a
barrel after U.S. government data showed a decline in crude
inventories. EIA/S
Prices are likely to be supported by production cuts coming
from the Organization of the Petroleum Exporting Countries and
its allies, including Russia.
Gold eased as optimism over U.S.-China trade ties offset
political uncertainty over Trump's impeachment. Spot gold XAU=
dipped 0.1% to $1,474.64 per ounce.
Elsewhere, palladium XPD= gained 0.5% to $1,934.08 per
ounce. Prices of the auto catalyst metal hit an all-time peak of
$1,998.43 on Tuesday, within a whisker of breaking above $2,000
for the first time due to a gaping supply deficit. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro zone inflation expectations https://tmsnrt.rs/34Aa3kD
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