GLOBAL MARKETS-Wall St up; political fears hit Italian markets

Mon Dec 10, 2012 3:07pm EST

* Italian prime minister's resignation stokes uncertainty

* Euro bounces back, Monti reaction possibly overdone

* Oil, copper firm after upbeat Chinese data

By Wanfeng Zhou

NEW YORK, Dec 10 (Reuters) - U.S. stocks were mostly higher on Monday, led by gains in McDonald's and technology shares, but Italian equities and bonds sank after Prime Minister Mario Monti's decision to resign stoked concern about who will lead the euro zone's third biggest economy out of its debt crisis.

The euro had earlier weakened sharply on the news out of Italy, but it managed to rebound against the dollar and pared most losses versus the yen as some analysts said the reaction to Monti's resignation may have been overdone.

Investors remained cautious as they awaited any sign of progress in budget talks in Washington to avert looming tax hikes and spending cuts that could push the economy back into recession.

"The funnel is starting to get narrower and narrower at the end of the year. We're waiting for political resolutions, waiting for headlines," said Brian Battle, director of trading at Performance Trust Capital Partners, in Chicago.

The heightened rhetoric and lack of substantial progress has handcuffed the equities market. The benchmark S&P 500 index has yet to see a move greater than 0.5 percent in either direction for December, and it hasn't moved more than 1 percent either way since Nov. 23.

The White House and House of Representatives Speaker John Boehner's office held more negotiations on Monday, but Republicans said they were still seeking a new offer from President Barack Obama.

The Dow Jones industrial average gained 11.64 points, or 0.09 percent, to 13,166.77. The Standard & Poor's 500 Index slipped 0.83 points, or 0.06 percent, to 1,417.24. The Nasdaq Composite Index rose 2.03 points, or 0.07 percent, to 2,980.07.

Shares of McDonald's rose 1.2 percent to $89.54 after the fast food chain reported stronger-than-expected sales in November, marking a rebound after a rare decline in October.

Technology stocks were the S&P 500's best-performing sector. Hewlett-Packard Co rose 2.9 percent on rumors that activist investor Carl Icahn is building a stake in the PC maker, while Cisco Systems gained 2.2 percent after the company laid out its mid-term growth strategy on Friday.

The FTSEurofirst 300 index rose 0.2 percent to end at 1,134.53 points. The MSCI global stock index edged up 0.1 percent to 334.87 points.

Monti announced over the weekend he would resign once the 2013 budget is approved, potentially bringing forward an election due early next year. Monti has become an investor favorite over the last year as he spearheaded a reform agenda in a bid to rescue Italy from the threat of a Greek-style collapse.

Italy's benchmark 10-year bond yield rose to 4.83 percent , the highest in roughly more than three weeks. Italian shares fell more than 2 percent.

The euro fell to 105.94 yen, its weakest in about two weeks, before recovering to 106.50 yen, down 0.1 percent. Against the dollar, the euro rose 0.1 percent to $1.2938.

CHINESE DATA

Commodities markets rose on data from China that showed factory output in the world's number two economy accelerated to an eight-month high in November.

Copper prices hit their highest level in almost two months, gold rose to around $1,711 an ounce, and Brent oil snapped five straight days of losses.

Brent futures rose to $108.54 before easing back to $107.38, up 36 cents. U.S. crude fell 32 cents to $85.62.

China's implied oil demand broke through the 10 million barrel per day barrier for the first time ever in November. Crude imports also rose, providing more evidence of economic recovery.

"The figures are another confirmation that Chinese oil demand is accelerating again, and there are good reasons to expect that it will carry on growing strongly next year," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

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

The benchmark 10-year U.S. Treasury note was up 2/32 in price, with the yield at 1.6164 percent.

The Fed is expected to announce a new round of Treasury securities purchases at the end of its 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.