GLOBAL MARKETS-Shares, euro fall on Greece, U.S. fiscal talks

Mon Nov 26, 2012 4:33pm EST

* U.S. stocks fall as fiscal talks set to resume

* Market focus on outcome of Greece aid negotiations

* Euro edges down vs dollar

NEW YORK, Nov 26 (Reuters) - Stocks around the globe and the euro mostly fell on Monday, with investors cautious over whether Greece will receive emergency aid to keep it financially afloat and no signs of progress by U.S. lawmakers to avoid the U.S. "fiscal cliff."

Without agreement by Congress and the White House, sharp tax increases and government spending cuts will take effect in 2013, raising the specter of stifling the fragile U.S. recovery and pushing Wall Street indexes to follow the global trend lower.

"My fear is that the can gets kicked down the road for at least a 6-month period," said Bonnie Baha, head of global developed credit at Doubleline Capital LP, in Los Angeles. "The market is going to hate it, especially the stock market."

Stocks, commodities and the euro were steady or slightly weaker following strong gains over the past week as investors reacted to a lack of visible progress in both Washington and Brussels, where Euro zone finance ministers and the International Monetary Fund were making their third attempt in as many weeks to agree on releasing emergency aid for Greece.

The Dow Jones industrial average ended down 42.31 points, or 0.33 percent, at 12,967.37. The Standard & Poor's 500 Index was down 2.86 points, or 0.20 percent, at 1,406.29. The Nasdaq Composite Index was up 9.93 points, or 0.33 percent, at 2,976.78.

Shares of U.S. retailers failed to lift the gloom on stocks after the start of the holiday shopping season. The Morgan Stanley retail index lost 0.6 percent on Monday.

The MSCI world equity index, which gained nearly 4 percent last week for its biggest weekly gain since April, was down 0.1 percent at 329.37.

Worrying investors is that euro zone ministers and the IMF must still agree on how to cut Greece's debt to a more sustainable level.

Greece, where the euro zone's debt crisis erupted in late 2009, is the currency area's most heavily indebted country despite a big "haircut" this year on privately held bonds. It needs the funds to meet upcoming debt repayments.

"There is some caution, but it is also clear that Greece's lenders will not allow the country to fail. A Greek default is not an option," said Koen De Leus, senior economist at KBC in Brussels.

French Finance Minister Pierre Moscovici, speaking on Sunday after a weekend teleconference of Greece's international lenders, said the gap had closed significantly, and he believed a deal could be reached quickly.

The euro was down 0.5 percent at 106.40 yen, having earlier touched 107.13 yen, the single currency's strongest level since late April.

Against the dollar, the euro was down 0.1 percent at $1.2968 , having hit its highest since late October on Friday.

Big gains for Catalan separatists in regional Spanish elections also hurt the euro, even though the result fell short of the convincing win needed to mount a push for a referendum on independence for the region.

There was a bigger impact from the Spanish vote in the fixed income market, where safe-haven German debt prices recovered some ground lost last week on concern over the outcome and Spanish bonds prices fell.

Benchmark 10-year German bond yields eased two basis points to 1.419 percent, while Spanish 10-year bond yields were last at 5.572 percent.

U.S. Treasury prices also rose on investors' appetite for safe-haven assets. The benchmark 10-year U.S. Treasury note was up 7/32, the yield at 1.6677 percent.

Major European share indexes were down across the board after some regional indexes had their best weekly performance since December over the past week.

The FTSE Eurofirst 300 index of top European shares surged more than 4 percent last week but then fell 0.5 percent on Monday to 1,104.65.

Earlier, optimism around the euro zone's ability to achieve a deal on Greece lifted MSCI's broadest index of Asia-Pacific shares outside Japan to a two-week high.

OIL RETREATS

Oil prices were also in retreat after recent gains, but the move was limited by worries over supply from the Middle East as violence flared in Egypt and hopes an aid deal for Greece would brighten the outlook for demand.

Brent and U.S. crude futures fell more than $1 on Monday as concerns about Greek debt talks and the U.S. budget negotiations kept the specter of dampened oil demand in focus and pressured oil and equities prices.

"I think it's mostly baked into the market that there's some chance of the fiscal cliff causing economic turmoil," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

Brent crude slipped below $111 a barrel while U.S. crude oil futures fell 0.5 percent to $87.79.

Gold fell 0.2 percent to $1,748.51, after rising to its strongest since Oct. 12 on Friday. Gold has gained around 11 percent this year, mainly due to expectations that U.S. monetary policy will remain loose.