Euro and stocks trade flat on Bernanke, debt crisis

Passers-by are reflected in a stock index board outside a brokerage in Tokyo June 17, 2010. Japan's Nikkei average fell 0.7 per cent after five days of gains, coming off one-month highs, though support was expected to hold at the level of the benchmark's 25-day moving average.

NEW YORK (Reuters) - Stocks and the euro traded little changed on Thursday as data signaling improvement in the U.S. labor market and remarks by Federal Reserve Chairman Ben Bernanke that suggested some economic optimism were offset by concerns over Europe's festering debt crisis.

Investors also remained cautious ahead of the U.S. non-farm payrolls and unemployment report for January on Friday, keeping prices in check across financial markets.

Bernanke, in testimony to Congress, said he was seeing signs that some of the uncertainty dampening U.S. business investment, including European banking woes, might be waning. But Bernanke said it was too soon to say whether the United States would remain unscathed by troubles beyond its borders.

"Bernanke is a little more bullish on the economy than expected," said John Doyle, a currency strategist with Tempus Consulting in Washington, D.C. "That sent the dollar lower and the euro higher, but I don't know how long it will last."

The euro advanced briefly against the dollar before trading down 0.1 percent at $1.3141. The dollar strengthened against a basket of major currencies, with the dollar index .DXY up 0.1 percent.

U.S. stocks seesawed in a tight range, pushed by earnings reports. Tech shares rose on strong earnings from chipmaker Qualcomm Inc (QCOM.O), whose shares hit a 12-year high after first-quarter profit trounced estimates. The shares closed up 2.0 percent to $60.73 after rising as high as $61.95.

New claims for U.S. unemployment benefits fell more than expected last week.

"The jobless claims continue the trend of decent news, though there have also been other indications of a general loss of momentum," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. "That suggests we're in the right ballpark with estimates for the jobs report, but also that we aren't likely to see a huge upside surprise."

Friday's report is expected to show nonfarm payrolls rose by 150,000 in January, down from a gain of 200,000 jobs in December, according to a Reuters survey. The unemployment rate is seen holding steady at a near three-year low of 8.5 percent.

The Dow Jones industrial average .DJI closed down 11.05 points, or 0.09 percent, at 12,705.41. The Standard & Poor's 500 Index .SPX rose 1.45 points, or 0.11 percent, at 1,325.54. The Nasdaq Composite Index .IXIC added 11.41 points, or 0.40 percent, at 2,859.68.

The 10-year U.S. Treasury note erased earlier price losses and turned slightly positive ahead of Friday's jobs report. The benchmark 10-year U.S. Treasury note was up 2/32 in price yield 1.82 percent.

"People are staying quiet ahead of payrolls tomorrow," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.

European shares hit a six-month closing high on the U.S. weekly jobless claims. Miner Xstrata (XTA.L) and commodity trader Glencore (GLEN.L) led gainers on confirmed merger talks. Xstrata jumped 9.9 percent, and Glencore climbed 6.9 percent.

The FTSEurofirst 300 index .FTEU3 of top European shares closed up 0.2 percent at 1,059.45 points.

The unresolved debt crisis in the euro zone kept investors on edge.

This week's European Union summit was "largely insufficient" in tackling the crisis, said Luxembourg's Jean-Claude Juncker, who heads the euro zone's group of finance ministers. He described Greek debt talks as "ultra-difficult."

Athens is scrambling to wrap up talks on a 130-billion-euro rescue plan and a bond swap deal before big bond redemptions come due in March.

MSCI's all-country world equity index .MIWD00000PUS gained 0.29 percent to 321.70. The emerging market index .MSCIEF rose 1.4 percent.

Brent prices rose for a third straight day and U.S. crude dropped more than 1 percent in heavy trading that saw the price differential between the two contracts widen close to three-month highs.

Brent crude oil rose 51 cents to settle at $112.07 a barrel after trading much of the session near break-even.

U.S. crude settled down $1.25 to $96.36.

Gold rose to a two-month high on the larger-than-expected fall in new U.S. claims for unemployment benefits. But analysts said bullion could retreat if Friday's jobs report disappoints.

U.S. gold futures for April delivery settled up $9.80 an ounce at $1,759.30.

(Additional reporting by Richard Hubbard in London and Nick Olivari in New York; Editing by Leslie Adler and Andrew Hay)