World shares were steady near all-time highs and the dollar and benchmark U.S. Treasuries and Bunds firmed on Thursday, as the head of the Federal Reserve left markets assessing how to handle the inevitable phasing out of its support.
The yen was under pressure in the currency markets as focus switched to Japanese weekend elections that are expected to strengthen the hand of Prime Minister Shinzo Abe and his radical economic stimulus policies.
Markets are also watching a meeting in Moscow of G20 finance ministers for signs of an orchestrated approach to the end of U.S. money-printing, which could help defuse volatility in global markets. The G20, which meets on Friday and Saturday, includes many of the developing countries that have been at the sharp end of the dollar's surge since Bernanke first signalled the fed would roll back its bond buying in May.
By mid-morning in Europe, the dollar index was up 0.1% but starting to sag following overnight gains made after Fed chief Ben Bernanke on Wednesday stuck to a timeline to wind down its $85 bln a month bond-buying programme.
Bernanke went out of his way to stress that the cautious withdrawal would depend on economic conditions, comments that helped comfort asset markets.
The broad FTSEurofirst 300 share index had recovered from a soft start to the day to be up 0.2% in early trading as it consolidated the 8% gains it and MSCI's world index have made over the last month.
Mouhammed Choukeir, Chief Investment Officer of fund manager Kleinwort Benson, said that while Bernanke's comments would help markets for now, investors would remain extremely edgy about the inevitable withdrawal end of uber-easy monetary policy.
"QE (quantitative easing) is here to stay a little longer, but it has to stop one day. The volatility in the past few weeks has perhaps been a glimpse of what is to come," Choukeir said.
YEN DROOPS
Wall Street was expected to open little changed according to U.S. futures, with U.S. unemployment data and the Philly Fed business survey stacking on top of another busy day of company earnings.
In the currency market, the dollar rose 0.6% versus the yen to push it back above 100 yen, while the euro hit a seven-week high of 131.45 yen as Sunday's Upper House elections in Tokyo moved into view.
Japan's massive monetary stimulus plan under Prime Minister Shinzo Abe was one of the main catalysts for markets during the early part of the year, causing a 14% plunge in the yen. The weekend polls are expected to strengthen his grip on power.
"The market is of the view the Abe administration will come out of this very well, so post-election it will be an interesting time because we could see the rhetoric around the reform plans picking up," said Morgan Stanley's head of European FX strategy Ian Stannard.
In debt markets, benchmark German Bunds tracked minor Bernanke-fuelled gains overnight by U.S. Treasuries to hit a five-week high.
A no confidence vote against Portugal's ruling coalition later in the day turned the focus to peripheral euro zone debt.
Spain and France both saw smooth bond auctions on Thursday despite a tougher backdrop, with Spain's prime minister fighting a corruption scandal and France having just lost its last triple-A sovereign credit rating from a major ratings agency.
