GLOBAL MARKETS-Shares, dollar up on 'fiscal cliff,' Japan vote

Mon Dec 17, 2012 10:55am EST

* Movement in 'fiscal cliff' negotiations; Wall St opens higher

* Japan LDP back in power after landslide election win

* Yen slumps to 20-month low vs dollar, 7-month low vs euro

By Angela Moon

NEW YORK, Dec 17 (Reuters) - Global shares advanced on Monday on encouraging signs over the weekend on "fiscal cliff" negotiations in the United States, while a win by Japan's conservative Liberal Democratic Party lifted the dollar to a 20-month high against the yen.

Sources familiar with the talks confirmed that Republican House Speaker John Boehner proposed extending low tax rates for anyone who earns less than $1 million, and rates would rise for wages above that level. The move was slightly closer to President Barack Obama's key demands as both sides try to avert the tax hikes and spending cuts that are set to take effect in the new year.

"There won't be a grand bargain or anything like that, but at least there is continuing dialogue, and the market is going to react positively to any news that there is some sort of a agreement to actually have an agreement in Washington," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research.

Uncertainty over if and when a federal budget deal will be done has kept investors cautious in what is already a normally quiet trading period heading into year-end.

Investors are worried the economy could slide back into recession if the full brunt of the tax and spending changes is allowed, though most expect a deal will eventually be reached.

The MSCI world equity index rose 0.3 percent to 337.31.

The Dow Jones industrial average was up 54.67 points, or 0.42 percent, at 13,189.68. The Standard & Poor's 500 Index was up 8.28 points, or 0.59 percent, at 1,421.86. The Nasdaq Composite Index was up 13.02 points, or 0.44 percent, at 2,984.36.

But the FTSE Eurofirst 300 index was down 0.3 percent, following a 0.5 percent decline in Asia share markets outside Japan.

The major debt markets, however, did take some encouragement from the Boehner proposal on taxes, with the benchmark 10-year U.S. Treasury note down 5/32 and the yield at 1.7196 percent.

If the S&P 500 sustains its gains through the session, the index would snap a two-day losing streak. Despite the uncertainty of fiscal cliff talks, the S&P has performed well in the last month, grinding higher on mostly light volume.

Apple shares were down 1.3 percent at $503.06 after the tech giant was hit with another downgrade, this time from Citigroup.

THE YEN

The biggest moves of the day came in the currency market following a landslide election victory for Japan's LDP on Sunday, which opened the way for a shift in economic strategy to lift the world's third-largest economy out of recession.

The triumph was seen as piling pressure on the Bank of Japan to ease further at its next policy meeting, which ends on Thursday, setting the stage for an even bigger fall in the yen.

The dollar was last up 0.3 percent on the day at 83.75 yen , having earlier hit 84.48 yen, its strongest since April 2011. This left it with the potential to target the 200-week moving average at 85.008 yen.

The euro jumped to around 111.30 yen, its highest since late March. It eased back as some funds liquidated long euro positions, leaving it last up 0.3 percent at 110.25 yen.

Japan's Nikkei stock index bucked the downward trend in Asian markets to close at an 8-1/2-month high on expectations the weaker yen will boost exports by Japanese firms.

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