Yen posts biggest weekly gain since 2008, stocks slip

A man (R) cleans electronic boards showing Japan's Nikkei average, the exchange rate between the Japanese yen against the U.S. dollar and stock quotation outside a brokerage in Tokyo, Japan, in this April 6, 2016 file photo. REUTERS/Issei Kato/Files

By Herbert Lash

NEW YORK (Reuters) - The yen hit an 18-month high on Friday as investors bet the Bank of Japan might be done adding stimulus to the economy, while stocks in Europe and on Wall Street headed lower as earnings disappointed.

Major European stock indexes closed down more than 2 percent, but U.S. equities pared some losses by the close after being down as much as 1 percent.

The yen posted its biggest weekly gain since the 2008 financial crisis, also spurred by a weak reading of U.S. economic growth in the first quarter on Thursday and the Federal Reserve's cautious tone this week.

The yen has gained 3 percent since Thursday when the BOJ decided to hold monetary policy steady in the face of soft global demand and the yen's recent sharp rise. The BOJ move defied expectations for increased stimulus measures to fight deflation.

The dollar was last down 1.57 percent against the yen at 106.38 yen after hitting an 18-month low of 106.29. The dollar was off about 4.8 percent against the yen for the week, and set to post its biggest weekly loss since October 2008.

The dollar also tumbled against the euro, with the euro hitting its highest against the dollar in two and a half weeks, at $1.1459. The euro was last up 0.85 percent against the dollar at $1.1447.

"A large part of this move is the BOJ, which caught a lot of investors by surprise," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

The dollar could fall to 105 yen in coming weeks as traders unwind "short" bets against the yen, analysts said.

European equities posted their biggest weekly drop in more than two months, with the FTSEurofirst 300 index of leading European shares falling 2.2 percent and the euro zone blue chip Euro STOXX 50 tumbling 3.1 percent.

MSCI's all-country world stock index fell 0.4 percent.

On Wall Street, the Dow Jones industrial average closed down 57.12 points, or 0.32 percent, to 17,773.64. The S&P 500 slid 10.51 points, or 0.51 percent, to 2,065.3 and the Nasdaq Composite fell 29.93 points, or 0.62 percent, to 4,775.36.

Rahul Shah, chief executive of Ideal Asset Management in New York, said valuations are high, so earnings must exceed that bar for the market to go higher.

"We've seen that from Amazon and Facebook, and those shares have been awarded accordingly," Shah said. "But the rest of the earnings reports have been less inspiring to say the least, so it's hard to see the overall market march much higher."

Amazon shares jumped 9.6 percent to $659.59 a day after the company reported profit and revenue that blew away analysts' estimates, along with doubts about the online retailer's investment spree.

Facebook earlier in the week reported revenue rose more than 50 percent, driving its shares up more than 7 percent on Thursday. Facebook rose 0.7 percent to $117.58 on Friday.

Brent crude trimmed gains after its biggest monthly rise in seven years. It touched 2016 highs as a weak dollar and falling U.S. production tempered concerns about an oil glut.

A looming rise in Middle East output capped gains, but investor sentiment held the optimism that has helped lift oil futures nearly 80 percent from January lows.

Brent futures settled down 1 cent at $48.13 a barrel, down 0.62 percent and U.S. crude settled down 11 cents at $45.92.

U.S. gold futures for June delivery settled up 1.9 percent at $1,290.50 an ounce, while spot prices reached a 15-month high of $1,296.76.

U.S. Treasury prices pared losses to rise, with the benchmark 10-year note trading up 3/32 in price to yield 1.8280 percent.

Germany's benchmark Bund yield rose sharply toward six-week highs, as the yield gained as much as 5 basis point to 0.305 percent.

(Reporting by Herbert Lash; Editing by James Dalgleish)