GLOBAL MARKETS-European stocks near 2012 high as ECB holds rates

Thu Dec 6, 2012 8:32am EST

* Europe's FTSEurofirst 300 index up 0.4 pct, near 2012 high

* Markets await ECB president's comments on policy outlook

* Euro slides back from 7-week high against dollar

* Oil, gold steady, cautious ahead of U.S. jobs report

By Richard Hubbard

LONDON, Dec 6 (Reuters) - European stocks held near their highs for the year on Thursday while the euro was flat as markets awaited new economic forecasts from the European Central Bank for clues on prospects for future interest rate cuts.

The ECB, as expected, kept its benchmark rate at a record low of 0.75 percent after its policy meeting but President Mario Draghi is expected to reveal lower economic growth projections at the subsequent news conference.

The euro held steady against the dollar at $1.3065 after the rates decision.

"The market is wondering if the ECB will hint at a rate cut to come, and if it does, this could point to a weaker euro. But the euro is still in rally mode until it gets back below $1.30," said John Hardy, currency strategist at Saxo Bank.

European stocks were also unaffected by the decision with the FTSEurofirst 300 index of top companies up 0.4 percent at 1,128.65 points having earlier touched its highest level for the year to date of 1,132.79 points.

London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were as much as 0.9 percent higher.

U.S. stock index futures indicated Wall Street would open little changed on Thursday in what could be another choppy session as the progress of budget talks in Washington continues to determine the market's fate.

The MSCI world equity index, which has gained over 11 percent so far this year, added 0.25 percent to 333.85 points, helped by big gains in Asian shares outside Japan , which have reached 16-month highs.

Signs of gathering momentum in China's giant economy, the modest recovery in the United States and Europe's recession-hit economies may have stabilised have encouraged demand in the world's main equity markets ahead of the new year.

"The momentum is positive for equity markets, which remain cheap compared with credit and government bonds," said Frederic Jamet, head of management at State Street Global Advisors France.

However, the lack of any progress in Washington at talks among politicians to avoid the "fiscal cliff" of spending cuts and tax rises starting in January is limiting the gains.

Financial markets were reassured on Wednesday when President Barack Obama said a deal was possible in "about a week" if Republicans compromise on taxes. No side has yet made any concessions.

The lack of a breakthrough supported safe-haven government bonds, keeping German Bund futures within tight ranges. Ten-year U.S. Treasury yields were hovering near a two-month low at 1.58 percent.

EUROPE IN FOCUS

The Bank of England also left its policy unchanged on Thursday, a month after completing its latest quantitative easing programme, as inflation outweighed worries about a sluggish economy.

The decision came despite finance minister George Osborne saying on Wednesday that Britain's economy would grow much more slowly than expected over the next three years and that a debt reduction goal would not be met.

French long-term bond yields fell at its first debt sale since Moody's downgraded the euro zone's No. 2 economy last month, as investors continued to seek the liquidity and safety of the French market.

Italian and Spanish government bond yields, however, rose as investors' recent enthusiasm for peripheral debt fades following a disappointing auction by Madrid on Wednesday.

In crude oil and other commodity markets gains were being checked by niggling worries about the growth outlook for the global economy before Friday's release of the U.S. non-farm payrolls report for November.

Three-month copper on the London Metal Exchange was down 0.1 percent at $8,065 a tonne, reversing gains from the previous session when it hit its highest since Oct. 19.

Data from Asia on Thursday added to the uncertainty about the prospect for future demand. South Korea's central bank said that growth this year in Asia's fourth-largest economy would probably fall below its 2.4-percent target.

U.S. crude futures fell 38 cents to $87.50 a barrel, while Brent was down 50 cents at $108.30.

"Overall, the markets are weak with the global economic concerns and will be trapped in a range until the U.S. 'fiscal cliff' issue is behind us," said Tony Nunan, an oil risk manager with Mitsubishi Corp in Tokyo.

Spot gold was around $1,690 an ounce, near the one-month low of $1,684.40 that it hit on Wednesday after a weaker price forecast by Goldman Sachs.

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