Bernanke tips his hand

Ben Bernanke has signalled that 'before long' the Fed will consider a 'modest increase' in the gap between the discount rate and Fed funds rate.

The US trade deficit widened from $US36.4 billion to $US40.2 billion in December as a 4.8 per cent lift in imports outpaced a 3.3 per cent lift in exports. Economists had tipped a $36 billion deficit.

US Federal Reserve chairman Ben Bernanke has delivered prepared testimony on the central bank's "exit strategy" for winding back monetary stimulus. The chairman expects "before long" to consider a "modest increase" in the gap between the discount rate and fed funds rate. And draining of excess reserves may be employed in the early stages.

European shares rose on Wednesday as investors focused on the likelihood of a bail-out package to end the Greek debt crisis. Banks drove the gains with the Greek bank index up 4.3 per cent. The FTSEurofirst index rose for the third day, up by 0.6 per cent, with the UK FTSE higher by 0.4 per cent and the German Dax up 0.7 per cent.

US sharemarkets eased modestly on Wednesday as investors shrugged off the latest economic data and news of the planned Federal Reserve "exit strategy". At the close of trade, the US Dow Jones index was down 20 points or 0.2 per cent with the S&P 500 down 0.2 per cent and the Nasdaq was lower by 3pts or 0.1 per cent.

US treasuries fell (yields higher) though, with investors focussed on the Federal Reserve "exit strategy", while a softer-than-expected $25 billion auction of 10-year notes weighed on treasury prices. US 2yr yields rose by 4pts to 0.88 per cent with US 10yr yields up 4pts to 3.69 per cent.

The Euro and commodity currencies eased against the greenback in the European session before clawing back losses in US trade. The Euro fell from highs near US$1.3815 to near US$1.3680, holding near US$1.3730 in late US trade. The Australian dollar fell from highs near US87.90c to US87.10c, holding near US87.50c in late US trade. The Japanese yen eased from 89.30 yen per US dollar to JPY90.05, trading near JPY89.90 late in the US session.

US crude oil prices rose again on Wednesday and the US Energy Information Administration raised its forecasts for crude oil demand and prices as continued heavy snowfalls in the US Northeast supported heating oil demand and prices. The Nymex crude oil contract rose by US74c or 1.0 per cent to $US74.49 and London Brent crude rose by US35c to $US72.48 a barrel.

Base metal prices were mixed on the London Metal Exchange on Wednesday. Investors waited for confirmation of a bail-out deal for Greece and the US dollar stabilised. Nickel rose 0.9 per cent but aluminium lost 1.5 per cent. And the price of gold fell by US90c an ounce to $US1,076.30.

Ahead: In Australia, the monthly employment report is released. Profit results are expected from Rio Tinto and Telstra. In the US, retail sales, weekly jobless claims and business inventory figures are released.