Stocks mixed, euro falls as focus turns to U.S.

NEW YORK Fri Jul 22, 2011 5:16pm EDT

Traders are pictured at their desks at the Frankfurt stock exchange July 12, 2011. Picture taken with a tilt and shift lens. REUTERS/Alex Domanski

Traders are pictured at their desks at the Frankfurt stock exchange July 12, 2011. Picture taken with a tilt and shift lens.

Credit: Reuters/Alex Domanski

NEW YORK (Reuters) - Wall Street stocks were mixed and the euro fell, as investors turned their attention to the struggle in Washington over raising the U.S. debt ceiling with less than two weeks left to avert a default.

Investors were also digesting details of the new aid deal for Greece and trying to gauge whether it is enough to stop the euro zone debt crisis from turning into a global one.

Anxiety over the absence of a U.S. debt compromise and implementation of the second round of the Greek debt plan renewed some safety bids for gold and U.S. and German government debt.

Uncertainties over the U.S. debt negotiations and the 109 billion euro rescue package for Greece pose risks for the global economy, leaving investors hamstrung, analysts said.

"Those tail risks are still quite large," Gerry Fowler, chief equity strategist at BNP Paribas in London, said of the debt predicaments in Europe and the United States.

"There's a lot going on in the economy that can't be predicted right now. Much of the outcomes will be determined by a small number of key decision makers -- whether they are politicians or central bankers," Fowler said.

In the past 24 hours, several news outlets reported U.S. President Barack Obama and top Republican lawmakers are close to a deal to slash up to $3 trillion in debt over 10 years. This would remove the political hurdle to raise the statutory $14.3 trillion borrowing limit.

The White House and Republican House leader John Boehner have denied that they are close to a deal.

Still, there were enough investors who are hopeful that the European and U.S. problems could be solved and who helped propel global stocks to two-week highs.

The MSCI world equity index .MIWD00000PUS was up 0.34 percent on the day and up 2.67 percent on the week.

European stocks .FTEU3 ended up 0.52 percent, rising 2 percent on the week, while emerging stocks .MSCIEF climbed 0.92 percent, adding to the week's 1.60 percent gain.

But Wall Street stocks .DJI .SPX .IXIC underperformed their peers as a disappointing profit report from heavy equipment maker Caterpillar (CAT.N) was among the few negative surprises in this week's batch of upbeat quarterly results.

"We had a little bit of shortfall from Caterpillar," said Anthony Conroy, head trader at ConvergEx, an affiliate of the Bank of New York. "It's taking the market off a little bit."

At 3:30 p.m. EDT (1930 GMT), the Dow Jones industrial average .DJI was down 55.93 points, or 0.44 percent, at 12,668.48. The Standard & Poor's 500 Index .SPX was up 0.42 points, or 0.03 percent, at 1,344.22. The Nasdaq Composite Index .IXIC was up 24.64 points, or 0.87 percent, at 2,859.07. For more, see .N

In the currency market, the euro last traded down 0.3 percent at $1.4365 but was on track to post a 1.5 percent rise on the week. For more, see <FRX/>

The U.S. dollar slid to a four-month trough of 78.22 yen on EBS electronic trading platform, the lowest since joint G7 intervention in mid-March to curb yen strength, before recovering to 78.382 yen, up 0.25 percent on the day.

The benchmark 10-year U.S. Treasury note was up 14/32 in price with a yield of 2.96 percent, down 5 basis points from Thursday. Despite choppy trading due to worries over a possible U.S. default, the 10-year yield has been stuck in a tight range and has held at a level that signals confidence in the United States' creditworthiness. See <US/>

The U.S. Treasury is set to sell $99 billion in bonds next week in advance of the August 2 debt ceiling deadline.

Futures on German Bunds, which some see as a safehaven alternative to U.S. Treasuries, rose 0.5 percent at 127.64 after touching its lowest level in two weeks. <US/>

In commodities trading, spot gold rose to $1,601.71 an ounce, about $8 below the record high set on Tuesday.

U.S. crude for August delivery in New York was up 61 cents at $99.74 a barrel, and Brent oil futures in London were up $1.11 at $118.62.

(Additional reporting by Aleksandra Michalska, Carole Vaporean, Edward McAllister, Gene Ramos and Nick Olivari in New York; Jan Harvey in London)