REFILE-GLOBAL MARKETS-Italian uncertainty hits euro vs yen; Wall St. firms

Mon Dec 10, 2012 10:25am EST

* Italian Prime Minister resignation plans pressures euro

* Italian shares, bonds tumble, U.S. stocks up as fiscal cliff eyed

* Oil, copper firm after China data

By Wanfeng Zhou

NEW YORK, Dec 10 (Reuters) - The euro fell against the yen while Italian stocks and bond prices sank on Monday after Italy's Prime Minister Mario Monti said he would resign, raising concern about who will lead the euro zone's third biggest economy out of the debt crisis.

But U.S. shares shrugged off the news out of Italy, trading slightly higher as investors awaited any sign of progress in talks to avert the United States' so-called fiscal cliff of tax hikes and spending cuts.

Monti announced over the weekend he would resign once the 2013 budget is approved, potentially bringing forward an election due early next year. The competent economist has become an investor favourite over the last year for guiding through a string of reforms.

The news pushed Italy's benchmark 10-year bond yield to 4.83 percent, the highest in roughly more than three weeks. Italian shares fell more than 2 percent, with banks hit hard because of their hefty domestic government bond holdings.

"The political situation in Italy just adds to the uncertainty in Europe and this will have a negative impact on the euro in the coming months," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.

The euro fell 0.2 percent to 106.42 yen. It dropped as low as 105.94, its weakest in about two weeks.

But the euro was able to erase losses against the dollar and trade little changed at $1.2923.

Some analysts noted that the bond and currency markets' reaction to Italy's news may have been overdone given the fact that Monti would have called for elections in a few months time anyway. Monti's decision simply expedites the process.

On Wall Street, the Dow Jones industrial average gained 25.78 points, or 0.20 percent, to 13,180.91. The Standard & Poor's 500 Index rose 0.47 points, or 0.03 percent, to 1,418.54. The Nasdaq Composite Index added 8.24 points, or 0.28 percent, to 2,986.28.

Gains in U.S. stocks helped European markets erase losses. Top European shares on the FTSEurofirst 300 index last traded 0.1 percent higher at 1133.64.

The MSCI global stock index rose 0.1 percent to 334.98.

U.S. Treasury debt prices rose on concerns over protracted budget negotiations in Washington, political rumblings in Italy and expectations for further monetary policy easing by the Federal Reserve.

The benchmark 10-year U.S. Treasury note was up 3/32, with the yield at 1.613 percent.

The Fed is expected to announce a new round of Treasury securities purchases at the end of a two-day meeting on Wednesday, according to a Reuters poll. The bond buying would replace the "Operation Twist" stimulus, which expires at the end of December.

Offsetting the European concerns were data from China which showed factory output in the world's number two economy accelerated to an eight-month high in November.

Copper prices hit their highest in almost two months on the upbeat Chinese sentiment, gold rose to around $1,712 an ounce and oil snapped five straight days of losses to climb back towards $108 a barrel.