LIVE MARKETS-The COVID-19 "relief" plan may have side effects

* U.S. indexes churn near flat

* Fed Chair Powell speech 1400 EST/1900 GMT

* Cons disc weakest major S&P sector; energy leads gainers

* Dollar slips; gold, crude higher

* U.S. 10-Year Treasury yield ~1.14%

Feb 10 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

THE COVID-19 "RELIEF" PLAN MAY HAVE SIDE EFFECTS (1333 EST/1833 GMT)

Jack Ablin, chief investment officer and founding partner at Cresset, is out with some comments surrounding President Biden's, and congressional Democrats', $1.9 trillion coronavirus relief plan, and what the side effects might be on financial markets.

Ablin notes that former Treasury Secretary Lawrence Summers has worried aloud that the proposed package, given its scale, could spark inflation or fuel a stock market bubble; according to Ablin, these are valid concerns.

As Ablin sees it, investors are clearly perceiving the proposed package as stimulus, as evidenced by the fact that U.S. stocks, underpinned by economically sensitive sectors, are hitting all-time highs, while crude oil, a cyclical commodity, is spiking. Meanwhile, bond investors, "also sensing percolating economic activity," are pushing interest rates higher.

While Ablin says it’s encouraging that markets anticipate improving economic conditions, higher Treasury yields are a double-edged sword.

"Higher 'risk-free' yields will eventually put pressure on equity market valuations, which have baked in a 'low-for-longer' interest rate regime." Ablin says it’s hard to determine how high rates could go, but coincident with Cresset's models, he says rates should be nearly double where they are today.

Ablin's bottom line is that while $1.9 trillion in stimulus could have a meaningful impact on the economy and earnings, "it’s unlikely that profit growth will be strong enough to offset valuation compression from higher interest rates."

Thus, although Fed Chair Powell has vowed to keep interest rates low, Ablin believes that the second half of 2021 "could test his resolve."

(Terence Gabriel)

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SUSTAINABLE FUNDS SCORE RECORD INFLOWS IN 2020 (1315 EST/1815 GMT)

Booming U.S. sustainable funds led by BlackRock ETFs drew $51.1 billion in net new deposits in 2020, more than twice the previous record set in 2019, researcher Morningstar said on Wednesday.

The funds accounted for nearly a quarter of total U.S. fund flows and continued a multi-year growth trend as clients focused on issues like climate change and racial justice, wrote Jon Hale, Morningstar's director of sustainable investing research, in a report e-mailed by a spokeswoman for the Chicago-based company.

The flows also reflected sustainable funds' outperformance of conventional peers, with 43% of sustainable equity funds finishing 2020 with top-quartile returns.

"In 2020, sustainable funds demonstrated that investing with an emphasis on how a company manages material ESG risks and how it manages key stakeholders can produce good returns in an uncertain economic environment," Hale wrote.

BlackRock Inc's iShares family of ETFs captured the majority of the inflows, taking in $23.1 billion in 2020, followed by the $4.7 billion received by Calvert funds, recently purchased by Morgan Stanley .

At the end of 2020, there were 392 sustainable open-end funds and ETFs available to U.S. investors, up 30% from 2019, Morningstar said. It defines sustainable funds as those for which environmental, social or corporate governance matters are central to the investment process.

The growth includes 25 funds that "repurposed" their investment strategies to become sustainable in 2020, allowing asset managers to adopt ESG approaches without having to launch new funds that can take years to draw enough assets for scale, the report found.

As an example it cited the Invesco Floating Rate ESG fund

which invests in bank loans and previously was just the Invesco Floating Rate fund.

(Ross Kerber)

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EMERGING MARKETS START STRONG, BUT HOW WILL THEY FINISH? (1221 EST/1721 GMT)

Emerging markets shares have stormed out of the gate in 2021, with the benchmark MSCI Emerging Markets index up over 10% to start the year against a roughly 4% rise for the S&P 500 .

Dara White, global head of emerging markets equity at Columbia Threadneedle Investments, describes the macroeconomic backdrop for the asset class as "extremely promising."

Broadly, she says in a commentary this week that emerging markets are benefiting from "the global wave of interest-rate cuts and liquidity injections by central banks."

Meanwhile, White writes, economies such as China and South Korea were among the first to be hit by the pandemic, "and their robust approach to tackling its spread have helped power strong recoveries."

Longer term, she says, a key factor driving EM is "their transition from export-led growth to reliance on buoyant domestic demand."

White is not alone with an upbeat view. The BlackRock Investment Institute is "overweight" emerging markets equities, saying in a note this week that "We see them as principal beneficiaries of a vaccine-led global economic upswing in 2021."

However, over at Miller Tabak, chief market strategist Matt Maley finds reason for caution. He wrote earlier this week that he sees a rally coming in the U.S. dollar that could last a couple of months. With emerging markets having an inverse correlation with the U.S. currency historically, he thinks that investors and traders alike should become "less aggressive" on emerging markets.

(Lewis Krauskopf)

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NASDAQ/TECH SCARE SPOILS EUROPE'S CLOSE (1145 EST/1645 GMT)

European stocks didn't fully recover from a brief selloff on the Nasdaq which quickly made its way to European tech.

The old continent was cruising on course for moderate gains thanks to its recovering banks and insurers, but about an hour from the close things went south.

Wall Street's VIX spiked and big names such as Tesla and Amazon pulled indexes down.

While Europe's STOXX 600 pared some losses, it closed down 0.25% at the end of what was a session largely expected to end with some, albeit, timid gains.

The reporting season is indeed going down quite nicely with over 70% of earnings beats so far.

You can see below how the late afternoon trading Nasdaq/tech scare changed the game for the tech index (above) and the STOXX 600 (below):

(Julien Ponthus)

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THE SPAC GREEN CARD (1107 EST/1607 GMT)

Greencard was definitely not French actor Gerard Depardieu's best movie but through it, many discovered that getting permanent residency in the U.S. isn't that easy.

Getting a U.S. listing ain't a piece of cake either but according to Skadden, U.S. SPACs could be how some European companies get their green card to Wall Street.

"Whereas 2020 was the year of the SPAC IPO, 2021 is positioning itself to be the year of the de-SPAC, with many European companies in prime position to take advantage of the wave of capital raised in 2020 and that is expected to be raised in 2021," the law firm argued in a note.

Of course, there are regulatory hurdles but that's what corporate lawyers get paid for arguably.

"There are a number of innovative structuring approaches allowing U.S.-incorporated SPACs to conduct successful de-SPAC transactions with European companies", the Skadden's team who authored the note added.

In the U.S., SPACs have become a popular route to public markets for firms looking to avoid the scrutiny and struggles attached to a traditional IPO.

And while the cash flowing towards these blank check companies is frequently cited as a symptom of the speculative bubbly frenzy taking over the stock market, they're now part of the toolbox of M&A lawyers and bankers looking for business in Europe.

(Julien Ponthus)

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TWITTER EYEING BITCOIN IF THAT'S HOW PEOPLE WANT TO DO BUSINESS (1035 EST/1535 GMT)

While Elon Musk has already put his money where his mouth is with regards to bitcoin, Twitter , whose CEO Jack Dorsey is a big fan of the crypto currency, is watching from the sidelines and doing its homework on the matter at least for now.

In an television interview on Wednesday, following the company's earnings report late on Tuesday, CNBC asked Twitter Chief Financial officer Ned Segal for a reaction to Musk's move.

"We watch closely what other companies do to see what we can learn from them, and when we think about our balance sheet. We think about matching how it's invested and the currencies in which it's invested relative to how we might pay people," Segal told CNBC.

"Whether it's paying somebody who is proving a service to us or paying employees, so we have done a lot of the upfront thinking to consider how we might pay employees should (they) ask to be paid in Bitcoin. How we might pay a vendor if they ask to be paid in Bitcoin and whether we need to have Bitcoin on our balance sheet, should that happen."

"It's something we continue to study and look at," said Segal. "We want to be thoughtful about it over time but we haven't made any changes yet."

Asked what the tipping point might be Segal said: "Well, one of the key things we would look at would be if people were asking to transact with us in Bitcoin because then we might consider whether we would be transferring dollars to Bitcoin at the time of the transaction or if we wanted bitcoin on our balance sheet ready to complete that transaction."

"We are really trying to match our assets and our liabilities and we take the same approach to Bitcoin that we do to all the other types of risks we have," Segal said.

(Subrat Patnaik, Sinéad Carew)

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TEPID INFLATION = SPUTTERING RECOVERY, BUT ONGOING FED SUPPORT (1000 EST/1500 GMT)

Wednesday data brought with it news of languid inflation and decreasing mortgage applications, as an economy battered by a weak labor market and stunted demand staggers through its first anniversary of the pandemic recession.

The prices U.S. urban consumers pay for a basket of goods

rose as expected by 0.3% in January, according to the Labor Department, a slight deceleration from the prior month's 0.4% gain.

Stripped of volatile food and energy prices, the consumer price index $(CPI.UK)$ rose at an annual pace of 1.4%, weaker than the 1.5% consensus, and edging further away from the U.S. Federal Reserve's average 2% year-on-year inflation target.

"Fears of rising inflation post-Covid - which we share - remain entirely theoretical," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "Base effects will lift core CPI inflation to about 2% by April, but markets are much more interested in the month-to-month numbers, which are unlikely to shift up sustainably until the reopening of the economy is well advanced."

Core CPI, along with most major indicators, remain below that target, providing some assurance that the central bank will keep key interest rates near zero for the foreseeable future.

Speaking of inflation, it's never a bad idea to pay a visit to our good friend the "misery index."

While it takes different forms, the misery index generally adds annual inflation growth to the unemployment rate. Year-on-year CPI plus unemployment dipped to 7.67, the lowest reading since March, but still well above pre-pandemic levels.

It should be noted, however, that the January drop in unemployment was driven in part by discouraged Americans leaving the workforce, and the coronavirus-stricken labor market is one of the factors keeping inflation so tepid.

Finally, demand for home loans fell by 4.1% last week, according to the Mortgage Bankers' Association (MBA).

A 4-basis-point uptick in the average 30-year fixed contract rate to 2.96% prompted a drop in the number of applications to purchase homes and to refinance existing home loans .

With mortgage rates edging up to "a high not seen since last November," noted Joel Kan, associate vice president of Economic and Industry Forecasting at MBA, "refinances declined, and their share of total applications dipped to the lowest level in three months."

Still, rates have been below 3% for some time. "We think most borrowers wishing and able to refinance have already done so," says Nancy Vanden Houten, lead economist at Oxford Economics.

Investors were nevertheless in a buying mood in morning trading as they took heart from upbeat earnings results and looked to Fed Chairman Jerome Powell's expected speech on the economic recovery.

(Stephen Culp)

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NASDAQ COMPOSITE: THIS RED LINE MAY BE A BRICK WALL (0900 EST/1400 GMT)

A measure of the Nasdaq's internal strength has been confirming the Composite's advance to record highs. However, this measure is rapidly nearing a long-term resistance barrier that stopped its rise in late 2018. Thus, the tech-laden index appears set for a big test:

Indeed, Nasdaq cumulative net new highs (running sum of new highs - new lows), on a weekly basis, bottomed in early April of last year. It then crossed above its 10-week moving average $(WMA.AU)$ in May, ultimately leading to new highs.

The measure now stands at about 167k, and is rapidly nearing a resistance line from 1998. This line capped strength in late summer/early fall 2018, just ahead of what would prove to be a more than 20% collapse in the Composite. The line now resides around 170k.

Given the measure's current rate-of-ascent, it could potentially hit this barrier over the next several weeks.

However, a weekly down-tick, followed by a break of its 10-WMA, could suggest that an important bearish trend change is occurring within the Nasdaq. Conversely, taking out the resistance line could suggest room for a more protracted bullish phase.

Therefore, given the measure's proximity to the line, the Nasdaq would appear to be at an important juncture.

(Terence Gabriel)

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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)