Yuan: US Sees Some Yuan Flexibility, Wants More - CNBC

China is starting to let its yuan currency rise more rapidly to curb inflation but needs to move even more swiftly toward a market-driven exchange rate, U.S. Treasury Secretary Timothy Geithner said on Tuesday.

Speaking ahead of top-level talks with Chinese officials in Washington next week, Geithner also said Beijing should stop favoring its giant state-owned enterprises by keeping their borrowing costs low and warned it may face a protectionist backlash if it does not do so.

Geithner and Secretary of State Hillary Clinton co-chair two days of talks next Monday and Tuesday with China's Vice Premier Wang Qishan and State Councilor Dai Bingguo.

The once-a-year Strategic and Economic Dialogue covers various economic and diplomatic issues but currency tensions are always on the agenda. U.S. manufacturers complain China's managed yuan gives its producers an unfair trade advantage.

Geithner said the yuan [CNY= 6.4955 -0.001 (-0.02%) ] has risen about five percent against the dollar since last June when Beijing loosened a peg on its value and suggested that China's knowledge that it must let it rise more to fight inflation was to U.S. advantage.

"Fundamental forces are now operating in an overwhelming direction of encouraging China to to let the exchange rate move more rapidly in response to market forces," he told the U.S.-China Business Council. "If they don't do there is greater risk that inflation accelerates."

Inflation Spur

In the past, Beijing has resisted U.S. pressure on the yuan, arguing that too fast a rise in its currency could upset economic stability. Geithner suggested China needs to reassess that policy.

"There are risks in gradualism, not just risks in moving, and China has to figure out how to balance those risks," he said.

China's central bank guided the yuan up by 0.9 percent against the dollar in April compared with 0.4 percent in March, accelerating its appreciation as the dollar fell to three-year lows against a basket of currencies.

The U.S. Treasury was scheduled to issue a semi-annual report on April 15 on the currency practices of U.S. trade partners that, in theory, could have labeled China a foreign exchange manipulator.

It has been delayed indefinitely and it is likely the Obama administration will opt for continued verbal persuasion but avoid harsher actions such as saying that China deliberately keeps the yuan undervalued to gain a trade edge.

"Our judgment is that it would be better for the world, more fair for us and I think in China's interest to let the exchange rate appreciate more rapidly than they've been doing," Geithner said. "Hopefully they'll make that same judgment and feel more confident now as they see inflation accelerating."

Geithner took aim at China's practice of fostering so-called "national champions" among its industrial sector — essentially state-owned companies that compete globally.

By controlling bank deposit and loan rates, China effectively channels low-cost loans to state-owned enterprises, known as SOEs, and gives them an advantage over both domestic and private firms.

"The financial distortions that give preferential advantages to SOEs add to trade tension and to calls for protection among China's trade partners," Geithner said.

U.S. Undersecretary of State Robert Hormats also blasted China for pumping up the ability of state-owned companies to a receptive audience at the U.S. Chamber of Commerce, a frequent critic of Chinese currency and trade practices.

He said 41 Chinese state-owned enterprises made the 2010 list of the 500 biggest companies in the world, and three made the top 100.

"It's imperative that our companies have a level playing field on which to compete, not just in China but around the world," Hormats said. He added the United States would press in both bilateral and multilateral forums for rules establishing a "competitively neutral environment" for state-owned enterprises in China.

Bin Laden Compound Likely to Reveal Al Qaeda Contributors - CNBC

Computers taken from Osama Bin Laden's Pakistan compound could reveal a motherlode of information on Al Qaeda donors and has probably already dealt a serious blow to Al Qaeda fund raising, according to a Middle East law expert.

George State University College of Law professor Jack Williams said new data, potentially in hard drives and other materials taken by the U.S. special forces, could reveal a new list of Al Qaeda contributors. Williams also works for Mesirow Financial as a senior managing director and company practice leader in investigative services.

"In many prior situations, where we have captured and/or captured and killed a high level target, particularly those who have been in place for a little while, we found computers with that type of information, and we've been able to glean a lot about the financial structure, flow of funds an the mechanisms by which Al Qaeda and groups raised funds to finance their activity," he said.

Williams said there have been at least four jihadi fatwas issued since the death of Bin Laden. While none were major, one was a fund raising plea. Fatwas are religious decrees issued by a cleric.

"I think there are going to be some companies that are concerned, not necessarily with their names showing up but with the names of their agents or vendors, suppliers or customers, on that Al Qaeda list," said Williams.

"The folks whose names are in those computers as substantial contributors to Al Qaeda causes — they nonetheless will pull back into the shadows to at least assure they don't cause any new undo attention that might be drawn to them. It will have an affect on their donor rate," said Williams.

Williams said Bin Laden was not the biggest contributor but his image was an important selling point, used around the world in places where Al Qaeda is active. "He was certainly the image around which the Al Qaeda mother ship surrounded itself. He was in a fund raising capacity both an emissary and an image," he said.

Whether pictures of Bin Laden, after he was killed, would be useful to Al Qaeda is unclear, but Williams expects the U.S. government to ultimately release them. The question authorities are grappling with is "will disclosing these pictures put more American lives at risk."

CNBC's Fast Money: Weiss: I Was At Ground Zero On 9/11 but I’m Still Not Trading on Bin Laden - CNBC

My wife was the first to see the news.

She was very happy, much more so than I was, perhaps because she was in the dark on 9/11 as to my whereabouts, while I knew exactly where I was—at Lehman Brothers headquarters across the street from the World Trade Center.

It took a couple of hours before I could get through to her, but the uncertainty was such a small price to pay versus the sacrifice of others.

Four months later, the FBI was in my driveway as my wife came home from picking the kids up at school. They wanted to know why I didn’t show up for Flight 93, my relatively last-minute decision not to make a business trip to San Francisco. It beat any investment decision I ever made.

I often still wonder why I had never realized I was to be on that flight that day until the FBI told my family. Every night from then on, as I put my daughters to bed, they would ask me to promise them that I wouldn’t be flying the next day.

I was back at work early on 9/12 in our administrative offices across the Hudson River in Jersey City, N.J. I was there with 20 others trying to figure out how we were going to stay in business while watching our building burn across the river.

The air was still acrid and ashes floated above us the following day as I returned to the Ground Zero neighborhood with a colleague to look at vacant office space offered to us by another company. But the firm quickly decided that we couldn’t bring our people back to that area.

Of course, Lehman stayed in business through hard work and teamwork, only to ultimately be brought down by a much stealthier attacker: the twin forces of leverage and greed.

While Bin Laden’s death is a cause for celebration, it is perhaps more a day for reflection and gratitude for those who have given their lives, both innocently and in service of our country.

But Bin Laden’s death is not an investible event unless the satisfaction of his demise leads to a more optimistic outlook from a personal standpoint. But I would caution against this approach, since the first lesson of investing is that there is no place for emotion in analysis.

In order to justify trading off this event, one must assume that Bin Laden had some influence upon the markets that has now been eradicated—and that’s not the case.

Stock Market and Investing: Silver's Shine Is Fading Fast - CNBC

Silver's shine is fading fast, and the market for the precious metal may have reached a top in a speculative, mad dash by ETF investors.

"The last move higher over the last month or so has really been driven by the strength of the retail investment demand, so the levels up here are not supported," said Suki Cooper, precious metals analyst with Barclays Capital.

"At levels above $40, we've seen some concern rising on the industrial demand side. The last leg higher has been investment-driven, rather than fundamentally supported. In that respect, the correction was due. I would say from a demand support point of view, we have levels that have been tested in other metals, but we haven't had a chance to test that in silver," said Cooper. "I think now prices are going to test where physical support comes in."

Silver [SICV1 41.055 -1.521 (-3.57%) ] has tumbled in the last two days, with Comex futures losing 10 percent on Tuesday alone, and the July contract finishing at $42.585 an ounce. Silver came within reach of $50 an ounce last week, and its all time nominal high, just above that level. The popular iShares Silver Trust ETF [SLV 40.58 -2.25 (-5.25%) ] lost more than 5 percent Tuesday, on volume of more than 211 million shares.

Moves by the CME to curb speculative buying with three increases in margin requirements in the last week have helped cool the metal's run.

"When something's on fire, there's lots of finger pointing. You've seen it in oil, and you're seeing it now of course in silver," said John Stephenson of First Asset Investment Management, in an interview on "Fast Money," in response to a question on the increase in margin requirements. Stephenson does not think silver's best days are behind it, and he expects the metal to reach $60 an ounce by year's end.

"The last two days have been pretty disappointing for people like me who are bullish silver," he said. But he added the world's awash in money looking for a home and gold [GCCV1 1536.70 -3.70 (-0.24%) ] and silver will continue to be magnets for it.

A larger-than-expected interest rate hike Tuesday by India and a slowing in Chinese manufacturing data earlier this week also led to selling in silver, which helped pull down other commodities. Commodities were also lower with emerging markets, on growth concerns.

Silver, up 150 percent since August, has been one hot commodity and it has been dubbed the "poor man's gold," as investors flocked to it while gold prices rose to $1500 and higher.

On the industrial side, silver is used in photography, solar panels, cell phones, computers and cars, in addition to jewelry. Cooper said at $50 an ounce, silver becomes 16 to 17 percent of the cost of producing a thin film solar panel.

Cooper said the latest buying frenzy was driven by investments in ETFs and silver coins and bars. At the end of April, for instance, eight silver ETFs held 15,486 tons of the metal, up from 14,582 tons in February. The April total was up just 10 tons from March, but at the same time, speculative accounts declined.

Speculators, which would include hedge funds, held 3,887 tons as of April 26, down 1,877 tons since Feb. 8. The all-time high for speculative holdings was 10,904 tons in late 2004, she said

"At the moment, the floor is going to be provided by a pickup again in retail investor interest, or it's going to be provided as we've seen in other metals, where physical demand comes in to buy support," she said.

Why High Gas Price Effects May Be Different This Time - CNBC

Kelsea Hanrahan spends a lot of time on the road.

The Long island, N.Y., consultant gets reimbursed 50 cents a mile for gas from her job. That used to net her an extra $50 a week in pocket change.

"I was pocketing money because my car is fuel-efficient, but now most of it's just going to the extra gas price," she says.

Brian Park doesn't have that luxury.

The Fort Lee, N.J., lawyer and his wife cut back on their driving and recently gave up their gym memberships to offset the extra $60 a month they're paying in gas costs.

"When I hear from the news that the gas price will skyrocket above $4 per gallon it freaks me out," Park confided as he filled up his Honda.

With the average price of regular gasoline now hovering near $3.80 a gallon nationally, prices at the pump are nearly a dollar higher than a year ago.

For the average American who drives about about 15,000 miles a year and uses roughly 750 gallons of gas annually, that dollar increase per gallon has eaten about a $750 hole into the household budget per car.

Americans have seen prices this high at the pump before, during the spike in 2008. Analysts expect to see the same kind of individual spending cutbacks we saw then.

"In 2008 we spent 12 months with gas above $3," and that resulted in notable changes in consumer spending choices, says David Portalatin of NPD Group. "Nearly half reduced their gas consumption by consolidated shopping trips, 29 percent cancelled or modified vacations, 25 percent found alternatives to driving. The more sustained price spike, the greater the impact."

Perhaps because consumers have traveled this road before, some analysts say this time around the impact may not be as pronounced across middle-class and higher-income consumers as it was in 2008.

Retail analyst Rich Hastings says retailers like Macy's [M 24.68 -0.03 (-0.12%) ], Costco [COST 76.41 -0.04 (-0.05%) ] and Bed Bath and Beyond [BBBY 54.52 0.46 (+0.85%) ] have done well in recent months, because their consumers tend to be more affluent. Hastings sees a battle royale looming for lower-end consumers between Wal-Mart [WMT 53.63 0.11 (+0.21%) ] and the dollar stores.

In 2008, price-conscious consumers traded down from the retailing giant to the dollar stores, and he says they've not really come back. This week Wal-Mart announced it would match its competitors' low-prices.

Hastings believes this time around the nation's largest retailer will be very aggressive to fight for market share.

"If they want to get really nasty they could keep those prices even lower and force other retailers to go even lower and force other retailers to go through margin compression, and mark-down deduction expenses," he says.

For online and catalog retailers like Amazon, [AMZN 182.29 1.81 (+1%) ] Overstock.com [OSTK 14.51 0.36 (+2.54%) ] and LL Bean that often entice customers with flat-rate and free shipping, higher freight costs could also pose a threat to margins, says James Matthews, a business parcel shipment consultant with Source Consulting.

"The trickle down can be considerable," Matthews says. "A lot more people are buying online. Companies can only absorb that charge for so long without having to increase the prices somewhere."

Yet, as oil futures have climbed back above $100 a barrel, this time around shipping fuel surcharges at FedEx [FDX 93.43 -0.65 (-0.69%) ] and UPS [UPS 72.61 -0.62 (-0.85%) ] are not as steep as they were when oil prices were at the same level in 2008.

In April three years ago air freight surcharges were close to 20 percent ,according to Source Consulting Research. This month, the air surcharge is hovering at around 11 percent.

"In recent years, when FedEx increased shipping rates, it also partially offset the increase by adjusting the threshold at which the fuel surcharge begins," says Jess Bunn of FedEx investor relations.

This time around, already accustomed to paying higher prices, customers may be feeling a little less sticker shock and be better prepared to make alternatives.

That expectation prices will rise is what really worries economists such as Nicolas Colas of ConvergEx.

While the Fed has said it believes the inflationary impact of the energy price is transitory, Colas says they have to be concerned that inflation psychology may become more fixed.

"The Fed knows they have to worry about inflationary expectations," Colas says. "Once you lose control of that psychology as a central bank you're in a tough spot." Colas thinks people are close to that point.

Consultant Kelsea Hanrahan certainly is. She's bracing for gas to top $4 a gallon this summer.

"I'm expecting it," she says. "That's where it seems to be heading."

Mad Money's Jim Cramer on CNBC: Cramer Explains What's Key to This Market - CNBC

Cramer on Tuesday marveled at how the market continues to push higher despite a long list of negative economic news.

"For the first time in a long time we're witnessing true bull market behavior where buyers don't scare easily and are willing to massively overpay anything with growth," Cramer said. "There's a shortage of, well, fright."

Consider Chipotle Mexican Grill [CMG 266.12 8.16 (+3.16%) ], which has seen shares soar. Investors continue to pay 39 times earnings for the stock, even though one would think it's dependent on consumer confidence, housing, net worth and lower gas prices. Yet the stock continues to go up. So long as Chipotle has earnings momentum, Cramer thinks growth-orientated hedge funds will continue buying shares. The second it loses that momentum, however, he expects the stock to fall sharply.

"Chipotle just won't go down, won't take a dive because that's what happens in a bona fide bull market," Cramer said. "In every bull market I've ever seen there have been anointed stocks, stocks that can do no wrong, stocks that make no sense to anyone but the people who buy them."

This rally is not about Chipotle, though. It's about the mechanics of the market. When it comes to fast food operators, Cramer would rather own McDonald's [MCD 75.37 0.37 (+0.49%) ], but he respects the buying power. That's important because in this market, money mangers don't care about price-to-earnings multiples. They care about growth. Hedge funds care so much about growth that they are willing to pay up for it.

"Recognize the power not just of the growth story, but of the undeterred buyers who are about to get a whole new influx of cash to propel Chipotle and other momentum names ever higher," Cramer said. "That's the key to this market."

Stock Market and Investing: Jobs on the Horizon as Market Drifts Higher Into Quarter-End - CNBC

Markets are already looking ahead to Friday's March jobs report as the next directional driver.

Stocks Tuesday floated higher in thin volume trading, with the biggest gainers the telecom and energy sectors. The Dow was up 81 at 12,278 and the S&P 500 was 9 points higher at 1319.

The dollar was also higher and bond prices were depressed, in part on comments from hawkish Fed officials that suggested the Fed should end its easy money policies sooner rather than later.

"It all comes down to Friday and the non-farm payrolls," said Boris Schlossberg of GFT Forex. "What if it comes in at 120,000, or 130,000, and unemployment goes back up to 9 percent? There's going to be a tremendous amount of resistance on the part of the FOMC to give it up." Economists expect about 200,000 jobs for March.

Dollar-yen was also higher Tuesday, surpassing the levels it hit after G-7 central banks intervened against the yen March 18.

"Since Plosser and Bullard, we have had 150 point rally. You can call this the second intervention — the Plosser-Bullard intervention," said Schlossberg. He was referring to Friday's comments from Philadelphia Fed president Charles Plosser and St. Louis Fed President James Bullard's comments, made today and over the weekend.

For Wednesday, investors are watching the ADP private sector payroll report for signals about Friday's jobs report. It is released at 8:15 a.m. The Challenger jobs report is released at 7:30 a.m. There is also another Treasury auction at 1 p.m. of $29 billion in 7-year notes. Wednesday's Fed speakers include Bullard, who is in London, and Kansas City Fed President Thomas Hoenig, who also speaks in London before the New York market open.

While bonds saw selling, stocks rose with little explanation Tuesday. Traders in the stock market dismissed comments from Bullard that the Fed could cut short its quantitative easing program. But the stock market has also ignored more trouble for banks in Europe and Japan's problems with its leaking nuclear power plant.

Another potential negative for stocks was the consumer confidence report but the market moved past it. As gasoline prices rose, consumer confidence fell to a weaker than expected 63.4 in March, after hitting a three-year high of 72 in February.

"Black swans are swimming in flocks now," quipped Jack Ablin, chief investment officer at Harris Private Bank. Traders have expected stocks to move higher into the end of the quarter Thursday, as portfolio managers shuffle holdings.

"One of the metrics we use is cash on the sidelines, and it's still nearly 25 percent of the capitalization of the stock market that's sitting on the sidelines in cash...that could be filtering in. Every day this goes on, it might be convincing these retail investors to be in there," said Ablin.

"Everyone's bemoaning the large government involvement, but that's what's keeping this going," he said. "We're getting pretty cautious here."

Earnings reports are expected Wednesday from Family Dollar [FDO 52.40 1.00 (+1.95%) ] and Signet Jewelers [SIG 44.80 0.85 (+1.93%) ]. Mosaic [MOS 78.85 1.18 (+1.52%) ] reports after the closing bell.

In Washington, the House Financial Services' Oversight and Government Reform subcommittee meets on TARP. The Senate Appropriations Energy and Water subcommittee holds a hearing on nuclear safety.

The Senate Committee on Agriculture, Nutrition and Forestry meets on high gasoline prices, and the House Financial Services Oversight and Investigations subcommittee meets on the cost of implementing Dodd Frank

candlestick pattern

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Why Won't the Fed Accept A Profitable Deal From AIG? - CNBC

For months, the Federal Reserve has insisted it has an exit strategy in place and has all the tools necessary for reversing the extraordinary monetary policy put in place during the financial crisis.

But now, faced with a formal offer to exit at a profit from one of the thorniest crisis-era holdings on its balance sheet, the Fed has remained silent and seemingly without a strategy.

AIG has come forward and offered $15.7 billion for the residential mortgage-backed securities in the Maiden Lane II portfolio. These assets were taken by the Fed in the darkest days of the AIG [AIG 36.55 -0.40 (-1.08%) ] bailout to secure a $22 billion loan that was part of the broader bailout.

The assets, mostly subprime residential mortgage-backed securities, have paid off and kicked off interest income while the loan has been paid down to the point where just about $14 billion is outstanding. So the $15.7 billion offer from AIG would mean the Fed would clear about $1.5 billion in profit on the assets.

The Fed could be excused if the offer had only just been made. But, in fact, the idea of AIG taking back these assets has been out there, in one form or another, since at least September. AIG has been busy raising money for what would be one of the biggest RMBS transactions since the financial crisis.

And yet, the Fed acts like it’s the first time it’s heard of the offer.

AIG CEO Robert Benmosche, in an interview on Squawk Box this morning, said he had still not heard from the Fed on its 10-day-old formal public offer to buy the Maiden Lane II portfolio. AIG had also not heard from the Fed on its behind-the-scenes offer to buy the assets in December.

Both the NY Fed and the Board of Governors in Washington declined numerous interview requests from CNBC to explain its thinking behind the AIG assets.

Fed watchers said they thought it made sense for the Fed to get these non-conventional assets off its book at the earliest opportunity. One source said he found Fed ownership of AIG subprime so troubling that he believed the central bank should unload them at almost any price, let alone at a profit.

Lou Crandall of Wrightson ICAP, said: “If I were the Fed, I would cash out and close the books.” He added that he would be happy to hear anything from the Fed explaining itself and, in an email, provided reasons that he thought could explain the Fed’s actions. He added that he barely believed his own reasons.

First, he said, the Fed may see it as premature to sell assets from a monetary policy stance. But then Crandall added, “I cannot imagine they think a transaction of this size would have macro implications.”

Second, he thought the Fed might think it will make more money by holding the assets. But then Crandall added that he’s pretty sure (as am I) that the Fed thinks such considerations shouldn't motivate a decision.

What has been especially frustrating to one person familiar with the matter is that taxpayers make out either way, and may do better if the assets reside on AIG’s books. Taxpayers own 92 percent of AIG, so let’s say theoretically that AIG underpays the Fed for the assets.

Taxpayers would capture all the upside by virtue of their equity ownership in AIG. What’s more, a dollar of interest income on the books of the Fed is worth only a dollar. A dollar of interest income on the books of AIG gets a multiple when express in stock value. Taxpayers will realize those multiples when and if the US treasury’s position is sold, perhaps as early as this spring.

This person thought, "They (the Fed) are just paralyzed on this question because they have been so beaten up by AIG."

There are those who believe the Fed should auction the assets and maximize the value. Word that Barclays [BCS 18.85 -0.10 (-0.53%) ] and others may be now be interested creates the possibility of a bidding war that could ring the last penny of value out of the assets.

The Fed would, of course, have egg on its face if the values came in lower than the AIG offer, but it’s reasonable to assume the offer in the table would be a floor. Still, the question is why a Fed that has been reasonably diligent about thinking about and even testing innovative strategies to unwind its easy monetary policy seems to blindsided by the question of how to handle the AIG offer for Maiden Lane II.

What’s clear is the controversy over what the Fed took onto its books from AIG has now changed into the conflict over what the Fed takes off its books from AIG.

Stock Market and Investing: Lookahead: Euro Crisis Bubbles Up Again - CNBC

Europe's sovereign debt crisis is bubbling up again -- as if investors don't have enough to worry about.

Stocks were relatively quiet Tuesday after Monday's big swing higher. The Dow [.DJI 12018.63 -17.90 (-0.15%) ] finished down 17 at 12,018, and the S&P 500 [.SPX 1293.77 -4.61 (-0.35%) ] slid 4 to 1293. The defensive utilities and telecom sectors were the only Standard and Poor's industry groups in the green, on a day that Reuters reports was the lowest trading volume day of the year.

But in the euro zone, spreads on peripheral sovereign debt were trading wider and credit default swaps, which reflect the price of insuring debt, went shooting higher.

On Wednesday, Portugal's parliament is scheduled to vote on a new austerity budget, which opposition parties have said they will not endorse. Prime Minister Jose Socrates has threatened to resign if the budget fails, raising the prospect of a government collapse and an IMF bailout. The vote comes on the eve of an important European Union summit Thursday where leaders are expected to agree to programs aimed at the sovereign debt crisis, including strengthening of the emergency funding mechanism.

In the U.S., Fed Chairman Ben Bernanke speaks to the Independent Community Bankers of America convention at 12 p.m. ET. New home sales are reported at 10 a.m., and traders are watching for EIA oil inventory data at 10:30 a.m.

Investors are also watching events in the Middle East and Japan's efforts to solve its nuclear crisis. Egypt's stock market was expected to reopen for the first time since the government was overthrown.

On Tuesday, the U.S. Food and Drug Administration banned food imports from the area of Japan affected by the leaking Fukushima Dai-ichi nuclear facility, and Japanese press reports said the Japanese government estimates quake related damage at $185-$308 billion.

Euro Zoned

Ireland joined Portugal in the spotlight Tuesday as rumors, later knocked down, circulated that it would not meet its debt payments.

The dollar was just slightly weaker against the Euro [EUR= 1.4162 -0.0037 (-0.26%) ] (1.4199) and slightly stronger against the Yen [JPY= 80.90 -0.07 (-0.09%) ] (80.9061).

"To me there's a disconnect here in terms of what certain assets are telling us in Europe, when contrasted with the apparently unrelenting strength of the euro," said Michael Moran, Standard Chartered senior foreign exchange strategist. "There is a conflict. I think at some point there will be a convergence and ultimately I think the euro will be the casualty, but this could take multiple months to really play out."

Moran said the November high of 1.4282 is in play as the next level for the euro currency. "That is really the level people are gunning for now," he said. "...On the one hand the debt perception of the European periphery has arguably worsened over the last 12 to 18 months, yet the euro is strengthening."

Moran said failure of the Portuguese government would be a "fresh negative" for the euro, and the rumors about Ireland, which were propelled across world markets by Twitter, is a reminder that there remains structural issues in the euro zone. He added that the stronger message might be that this is a period of dollar weakening, rather than euro strengthening.

"There's two central pillars of support. One is Germany and its outperformance, and the other is the insistance from (European Central Bank President Jean Claude) Trichet that tightening is the best course of action," he said.

"If one take a macro view in the next six months, the euro does look a little too strong in that sense. But if you're a trader, especially over the last two or three weeks, you have to be cognizant that the momentum really has been with the euro bulls, and it's been very expensive trying to fade these moves higher in the euro. But I think there is some inconsistencies and conflict, which suggest sentiment might still have a glass jaw, but it's very difficult to really go against the under lying momentum now," he said.

Oil Drill

Oil was a big gainer on the day, with the May contract for WTI Crude [CLCV1 105.23 0.26 (+0.25%) ] rising 1.8 percent to settle at $104.97 per barrel, as traders watched the conflict in Libya and tensions in Yemen and Syria. Yemeni President Ali Abdullah Saleh refused to give in to opponents who demanded he quit, as he continued to lose support from one-time backers.

Traders are watching for EIA supply data, following the API's report that showed a 970,000 build in U.S. crude stocks, well below the 1.6 million barrel increase expected by analysts.

"It's a very nervous market.. If the wrong thing happens. it could take out the highs we knew in 2008 in a blink," said Ray Carbone, president of Paramount Options.

While oil rose in reaction to Middle East events, Treasurys slid, with the 10-year Yield rising to 3.334. Gone was the flight-to-safety bid of last week, when markets reacted to fears that Japan's nuclear crisis would continue to worsen.

"It's right now immune to any of the external forces. You've got the market trading momentarily on the Fed purchases. This week we had an onslaught of corporate pricings. So in the morning, you get the hedging of the product, and in the afternoon you get the pricings," said Jefferies Treasury strategist John Spinello.

There was $13.65 billion in investment grade corporates issued Tuesday, including most of a $7 billion 6-part trade for Sanofi-Aventis' acquisition of Genzyme. Dupont also came to market with $4 billion for its acquisition of Danisco, according to Thomson Reuters IFR. So far this week, $19.3 billion has priced, compared to just $6.85 billion last week as issuers held off a the Japanese and Middle East events dominated market attention.
Spinello said the overnight Tuesday was affected by strong U.K. inflation data, which drove Sterling [GBP= 1.6355 -0.0017 (-0.1%) ] higher against the dollar. "The question is who goes first," in terms of tightening monetary policy, and the market could become concerned that the Fed is lagging in tightening, he said.