GLOBAL MARKETS-Stocks slip, euro dips before German ruling, Fed

Mon Sep 10, 2012 4:28pm EDT

* S&P 500 stock index hovers just below four-year high

* Talk of Fed easing after weak U.S. jobs report restrains moves

* Euro off four-month high; German court decision due Wednesday

* China imports slip from year ago

By Ellen Freilich

NEW YORK, Sept 10 (Reuters) - U.S. stocks slipped on Monday while the euro dipped below four-month highs before potential new stimulus from the U.S. Federal Reserve and the European Central Bank.

Markets are awaiting the Fed's decision at the end of its two-day policy meeting on Thursday and, a day earlier, a German constitutional court ruling on whether Germany may contribute to the euro zone's rescue fund. The ruling is crucial to the ECB's plan to contain the borrowing costs of Spain and Italy.

"After some significant moves last week, Monday was more of a waiting game as the markets looked toward the news coming out of the Fed and the German constitutional court later this week," said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets.

The Dow Jones industrial average fell 52.35 points, or 0.39 percent, to 13,254.29. The Standard & Poor's 500 Index fell 8.84 points, or 0.61 percent, to 1,429.08. The Nasdaq Composite Index slid 32.40 points, or 1.03 percent, to 3,104.02.

American International Group Inc shed 0.02 percent to $33.30 after the U.S. Treasury Department said it will sell most of its stake in the insurer, making the government a minority investor for the first time since it rescued the company in the depths of the financial crisis four years ago.

China reported its imports fell 2.6 percent in August from a year earlier, contrary to expectations of a 3.5 percent rise.

"Bulls got a little bit of cold feet on weak economic data from China," said Steven Ricchiuto, chief economist at Mizuho Securities USA.

Dutch elections on Wednesday could also affect investors' outlook if voters in the Netherlands elect a government less committed to the euro currency union.

Stocks rose to four-year highs last week after the ECB said it was ready to buy an unlimited amount of bonds. The ECB news sent European shares to a 13-month high and the euro to a four-month peak.

The euro fell against the dollar for the first time in four days o n M onday, slipping 0.37 percent to $1.2759, still near Friday's high of $1.2817, its strongest since May. But talk of Fed easing limited the downside.

The MSCI index of top global shares slipped 0.43 percent. Stock markets in London, Paris and Frankfurt slipped slightly.

The benchmark S&P 500 index rose 2.2 percent last week, its biggest weekly gain in three months as a weaker-than-forecast U.S. jobs report heightened expectations of more stimulus measures.

U.S. Treasuries ended unchanged to higher, bolstered by the potential for more large-scale asset purchases by the Fed.

"The Fed remains very concerned about employment and will clearly stress that in its statement Thursday," said James Sarni, managing principal at Los Angeles-based Payden & Rygel Investment Management.

Sarni cited "a good chance" the Fed would be more specific about a time line for initiating QE3 and what form such easing might take.

After Thursday's ECB announcement, the Fed's message could imply some globally coordinated effort to address the challenges to the global economy, Sarni said.

In late trade, the benchmark 10-year U.S. Treasury note was up 3/32, its yield rising to 1.66 percent from 1.58 percent at Friday's close.

Gold stayed near six-month highs after last week's softer U.S. jobs report heightened expectations for more monetary easing from the Fed.

Spot gold stood at $1,725.20 an ounce, having risen last week by 2.7 percent, its third straight weekly gain and its longest stretch of gains since the start of the year.

Since the Fed first used bond purchases as a means to encourage growth in late 2008, gold has more than doubled in value, hitting a record $1,920.30 an ounce last September.

Deutsche Bank analysts expect gold price to average $1,726 an ounce this year before rallying to $2,000 early next year, making their outlook one of the more bullish from a Reuters mid-year price survey in July.

Expectations of further Fed action have increased since Chairman Ben Bernanke said in a speech at Jackson Hole, Wyoming, that high unemployment is a "grave concern" and that the bank would act as needed to strengthen the economic recovery.

"The Fed is looking for a much more substantial improvement in the labor market," said Zach Pandl, interest rate strategist at Columbia Management. "It's difficult for Treasury yields with the economic environment supportive for Fed easing."

In oil trading, Brent crude futures for October delivery settled at $114.81 per barrel, up 56 cents, or 0.49 percent. U.S. crude settled at $96.54 per barrel, up 12 cents, or 0.12 percent.

Analysts said expectations the Fed would act to stimulate the economy countered downward pressure from the weak Chinese economic data that raised concerns about demand for oil.

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