Global equity markets have been knocked lower by an earnings shortfall from Compaq (CPQ) , the world's largest computer maker. The fall in equities has helped extend global bond market rallies. The dollar is trading heavy after finishing soft before the weekend.

After it was unable to sustain gains above 17,000 at the end of last week, the

Nikkei

fell 2.1% today amid profit-taking. Technology issues were among the featured losers. Japanese government bonds were boosted by comments from the Ministry of Finance's

Sakakibara

, who had indicated before the weekend that the MOF could continue to buy JGBs and that the increased supply would not drive up interest rates over the next year or two. The yield on the benchmark 10-year bond fell 3 basis points to 1.58%, a four-month low for 10-year rates.

Data released today suggest that talk of Japanese repatriation last month were grossly exaggerated.

Preliminary figures for March show Japanese investors were net buyers of 108.7 billion yen ($9 billion) of foreign bonds and 90.1 billion yen in foreign equities. The big capital inflow into Japan, which helped boost prices for the fiscal year-end book-closings, came from foreigners. Foreign investors bought a record 1.6 trillion yen ($13.3 billion) of Japanese equities in March, though they sold 537 billion yen of Japanese government bonds.

European equities are sliding and this is helping push down bond yields

. The yield on the 10-year German bund, the benchmark is Europe, is about 5 basis points lower at 3.79%, a two-month low. Other 10-year European government bond yields are 3-7 basis points lower.

Most European bourses are 0.5%-1% lower. Technology shares appear to be leading the move, while interest rate-sensitive sectors like insurers are faring better. Merger-and-acquisition activity is also helping limit the overall losses. Near midday in London, most of the European bourses seem to be stabilizing at lower levels.

Economic news from Europe is limited today largely to March inflation figures from France. French prices rose 0.4% in March. The somewhat larger-than-expected rise was attributed to higher energy prices and the end of discounts by some large retailers.

Germany reported industrial output fell 3.4% in February after rising 2.9% in January. Output in the January-February period was 0.4% below year-ago levels. The methodology used to calculate this time series has changed, making economists' forecasts less reliable than usual. With these numbers and last week's

ECB

rate cut, sluggish first-quarter growth is assumed. The focus for the market and policymakers is really how the economy is faring as the second quarter unfolds.

The German Social Democrat Party holds its convention today.

Chancellor

Gerhard Schroeder

is expected to replace

Oskar Lafontiane

as party leader. The left wing of the party seeks to prevent Schroeder from moving the party toward a more pro-business stance. Reports suggest that it may press for a new wealth tax.

Meanwhile, Han Eichel will be sworn in as finance minister later today and some press reports suggest he may seek a new budget-consolidative law that would enhance the government's ability to cut discretionary spending, even statutory outlays. Such a measure has not been used in Germany since 1982.

The dollar is lower across the board.

Many observers will attribute the dollar's weakness to expectations of sharp U.S. equity losses today. While it makes a good story, it seems more complicated than that given world bourses are sharply lower as well. The Nikkei's losses, for example, appear larger than the early call on the

S&P 500

-- yet the yen is well bid. The dollar's weakness does not appear to be taking the shine off U.S. bonds. The benchmark 30-year Treasury bond is firmer, with the yield near its lowest levels in two months. Look for the June bond futures contract to test the 124-00 area.

In the six sessions through last Friday the dollar had not fallen below the 120.30-yen level. The break of this area today warns of a test on the uptrend line drawn off the year's low and comes in near the 119 yen. Sakakibara warned late last week that Japanese officials are prepared to take steps to prevent what he called a premature rise in the yen.

The dollar is also slipping against the major European currencies: the euro, sterling and the Swiss franc. The euro is flirting with important resistance near $1.0850. A convincing breech of this area will likely signal a gradual climb toward $1.10. A comparable level for the dollar against the Swiss currency is found near 1.45 francs (vs. 1.4760 franc currently). Sterling continues to recover from its recent slide and is posting its fourth consecutive advancing session. Look for sterling to rise toward $1.6235 or about 3/4 cent from current levels.

Brazil's central bank holds it monetary policy meeting on Wednesday and a rate cut is likely.

Key rates have already been cut from 42% to 39.5%. A further reduction in rates will help reduce the cost of financing the government's deficit. Excluding debt servicing, Brazil runs a substantial budget surplus. Lower interest rate would also mitigate the economic downturn.

Contrary to what the IMF feared, lower rates have not undermined the currency. In fact, the Brazilian real has strengthened as interest rates have fallen. On Wednesday, Brazil will resume its privatization efforts with the sale of a San Paulo gas distributor. It is the first privatization since the devaluation earlier this year and is expected to raise at least 1.4 billion reals.

Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

commentarymail@thestreet.com.