GLOBAL MARKETS-Shares, dollar up on U.S. 'fiscal cliff' optimism, Japan vote

Mon Dec 17, 2012 11:58am 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, bolstered by signs of tentative progress over the weekend on negotiations over the U.S. "fiscal cliff," while a win by Japan's conservative Liberal Democratic Party lifted the dollar to a 20-month high against 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.

Republican House Speaker John Boehner signaled willingness to move closer to President Barack Obama's demands as they try to avoid the automatic tax hikes and spending cuts that would take place in the new year if no deal were reached.

"We have a nice little move here (in the market) following the conversations between the GOP and the White House on getting a deal done," said Frank Davis, director of sales and trading at LEK Securities in New York.

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.

In U.S. stock trading, nine of the S&P 500's 10 sectors were higher, led by financials, as the S&P Financial Index gained 1.6 percent. Shares of Bank of America rose 2.7 percent to $10.87 and Citigroup gained 2.6 percent to $38.57.

The Dow Jones industrial average was up 79.10 points, or 0.60 percent, at 13,214.11. The Standard & Poor's 500 Index was up 12.62 points, or 0.89 percent, at 1,426.20. The Nasdaq Composite Index was up 28.84 points, or 0.97 percent, at 3,000.18.

The MSCI world equity index rose 0.5 percent to 337.93ollowing 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 was down 10/32, the yield at 1.737 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 Inc shares slipped again on Monday. They were down 0.9 percent to $505.12 after two firms cut their price targets on the stock.

The tech giant said it sold more than 2 million of its new iPhone 5 smartphones in China during the three days after its launch there on Friday, but the figures did not ease worries about stiffer competition. Apple shares have tumbled nearly 30 percent in about three months.

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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