European stocks rise, dollar set for weekly loss after yields drop

By Elizabeth Howcroft

PARIS, Oct 16 (Reuters) - European stocks rose on Friday as markets stabilised after a sharp tech-led selloff, while the dollar headed for a weekly loss.

Markets have been rattled this week by concerns over higher interest rates and the debt-fuelled financing behind the AI boom, triggering a selloff in technology and chip stocks.

Traders increased bets on further US rate hikes after stronger-than-expected inflation data on Wednesday, while investors piled into Treasuries and other government bonds.

Asian stocks mostly rose and bond markets steadied on Friday, with investors reversing some of the previous session's moves. 

Indonesian equities suffered their biggest drop since 1998 after index provider MSCI said the country's market no longer merited emerging market status and outlined plans to remove it from key indexes tracked by funds. 

Turkey's main stock index also slid more than 3% after MSCI froze certain changes to its Turkey equity indexes.    

At 1055 GMT, the MSCI World Equity Index was up 0.4% but still set for a weekly loss. European stock indexes, hit less hard by Thursday's selloff, were higher, with the STOXX 600 up 0.6%, Germany's DAX up around 1% and France's CAC 40 up 0.5%. London's FTSE 100 was up less than 0.1%.

US stock futures also pointed to a recovery on Wall Street, with S&P 500 futures up 0.2%, although Nasdaq futures were still in the red as investors remained worried about mounting credit risks linked to the AI trade, particularly among heavily indebted data-centre operators such as CoreWeave, which helped trigger Thursday's selloff.

"The question of monetization to me is still the big question that is not fully answered. There are still some doubts about the sustainability of the profits and the margins from some actors in the sector," said Amelie Derambure, a senior multi-asset portfolio manager at Amundi in Paris.

Still, Derambure said she remained overweight US equities and expected earnings to be strong enough to limit any market correction.

DOLLAR FALLS, BONDS RECOVER

The dollar fell 0.4%, leaving the dollar index at 101.65 and on track for its first weekly decline after three weeks of gains, as lower Treasury yields reduced the currency's appeal. Further worries about AI would push the dollar down further, analysts said.

The weaker dollar helped lift the euro from its recent 17-month low. It was last up 0.4% at $1.1257.

European government bond yields edged higher on Friday, with Germany's 10-year yield at 3.4355%. Even so, yields remained lower on the week as investors sought the safety of government debt amid concerns about AI-related companies' finances. G7 government bond markets were on course for their strongest weekly performance since late May.

The correlation between German bond yields and the STOXX 600 turned positive this week for the first time since August, suggesting government debt is regaining some of its safe-haven appeal. That relationship weakened this year amid concerns that the war in Iran could fuel inflation and keep borrowing costs higher for longer.

Oil prices were mixed, with Brent crude futures at $106.14 a barrel but still headed for a weekly gain amid concerns over Middle East supplies. Attacks around the Strait of Hormuz have surged in the past 10 days.

Gold gained support from the weaker dollar, rising to about $4,174.52 an ounce.

(Reporting by Kevin Buckland and Elizabeth Howcroft. Editing by Ros Russell and Mark Potter)