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Financial Focus

Portugal has asked the European Commission for help, following a 1bn bond sale that saw six month bonds reach yields of 5.1%, a price that the interim government admitted was unsustainable.

President Obama and top lawmakers claim to have made progress with the urgent budget talks as they try to avert government shutdown on Friday. The FT reported that the US has prepared to stand down nearly 1m workers and suspend services if US budget agrrements cannot be reached before government funding expires on Friday.

ECB President, Jean-Claude Trichet, has indicated that a 0.25% rise to 1.25% is all but certain today. The move ends almost two years of record lows for official Eurozone borrowing costs, and puts the ECB ahead of the US Fed and BoE in tightening monetary policy. The region’s rate-change is likely to see the dollar fall against the euro, making dollar-priced commodities more expensive – a fact not lost on investors who yesterday moved into gold, silver and oil in readiness.

MARKETS:

WALL STREET gained yesterday, sending the Dow Jones to its highest level since 2008, and helping US, European and UK indexes continue their upward trends.

CHINA’S Shanghai Composite Index is set to extend its one-month high, following strengthening energy stocks buoyed by increased retail gasoline and diesel prices in the country. In Hong Kong, analysts point at profit taking in overbought blue-chips as the reason for the Hang Seng’s dip, but believe that this correction is temporary. The Nikkei nudged up after two days of declines, but trade was light ahead of earnings announcements.

EUROPEAN shares are set to open slightly lower today ahead of a widely expected rise in rates by the European Central Bank, and with focus on peripheral banks after Portugal decided to seek financial aid.

CURRENCIES:

THE EURO held below yesterday’s highs against the yen and dollar, ahead of the ECB interest rate hike widely expected later today. The money-tightening signals helped offset the concerns over Portugal’s bailout request, but many analysts feel that a correction in the common currency after it’s recent rally is overdue.

ENERGY:

BRENT crude oil futures hit a 2½-year high of $123 per barrel yesterday as rebels were forced to suspend production in Libya’s eastern oil fields due to a sustained assault by Gaddafi’s forces.

COMMODITIES:

GOLD and silver prices soared to new highs against the dollar yesterday, as investors moved into the precious metals as a safeguard against currency risks and inflation. Gold surged past $1,463 an ounce before closing at $1,461.50, having rallied by more than 8% over the last two months. Gold futures also rose by half a per cent, while silver hit a peak of $39.68 an ounce during the day.

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