GLOBAL MARKETS-Setback in U.S. fiscal talks rattles shares, euro

Fri Dec 21, 2012 12:39pm EST

* Failure of Boehner plan in U.S. House fans uncertainty
    * Dollar, government bonds up as safe havens climb
    * Oil slides on worries failed talks may spark recession


    By Herbert Lash
    NEW YORK, Dec 21 (Reuters) - Global stock markets skidded on
Friday while the euro and oil prices also slipped as a new
setback in talks to avert a U.S. fiscal crisis and weak data out
of Europe put investors on edge. 
    A proposal from U.S. Speaker of the House of Representatives
John Boehner to avoid the "fiscal cliff" failed to get support
from his Republican party on Thursday, casting fresh uncertainty
over negotiations to avoid automatic tax hikes and spending cuts
in January that could push the U.S. economy back into recession.
 
    Wall Street extended losses after Boehner said congressional
leaders and President Barack Obama must try to move on from his
failed "plan B." He did not outline a clear path forward on
negotiations. 
    "The markets are becoming extremely nervous as time is
running out for any compromise solution" in U.S. fiscal
negotiations, said Boris Schlossberg, managing director of FX
strategy at BK Asset Management in New York.
    "The greatest fear among investors is that the sudden shock
to U.S. aggregate demand caused by the automatic sequestration
of government spending and the simultaneous hike in taxes could
have a chilling effect on global growth."
     MSCI's all-country global equity index fell
1.03 percent to 339.06.
    The Dow Jones industrial average was down 170.15
points, or 1.28 percent, at 13,141.57. The Standard & Poor's 500
Index was down 19.12 points, or 1.32 percent, at
1,424.57. The Nasdaq Composite Index was down 43.20
points, or 1.42 percent, at 3,007.19. 
    A poor reading on U.S. consumer confidence added to the
gloom. 
    Thomson Reuters/University of Michigan Surveys of Consumers'
final December consumer sentiment index fell to 72.9 from 74.5
in a preliminary report. Economists in a Reuters survey expected
a final December reading of 74.7. 
    Weaker-than-expected data from key corners of Europe also
weighed. German consumer morale dropped to its lowest in more
than a year, Britain revised growth figures lower and Sweden
slashed its economic forecasts.  
     The pan-European FTSEurofirst 300 index 
provisionally closed down 0.3 percent at 1,138.90 points, just
off a 19-month high of 1,144.15 points set earlier this week.
    The euro fell 0.62 percent to $1.3159. 
    The combined worries prompted widespread selling in most
major stock markets and led investors to safe-haven assets.
    The dollar and yen and U.S. and German Government bonds all
rose as declines on equity markets in London, Paris
 and Frankfurt compounded tumbles in Asia. 
    German Bund futures rose 45 ticks to a settlement
close of 144.77, extending Thursday's gains.
    Bickering U.S. politicians have only 10 days left to resolve
their differences. Most observers are still assuming the two
sides will avert a fiscal disaster but tensions are likely to
intensify over the normally quiet holiday period as the deadline
looms.
    "The markets are likely to interpret this as signaling even
tougher negotiations in coming days," Mohamed El-Erian, chief
executive of bond giant PIMCO, told Reuters.
    Oil was also caught up in the U.S. disappointment. Brent
crude oil fell $1.33 to $108.87 per barrel, while U.S.
oil futures <CLc1) fell $1.67 to $88.46.
    The benchmark 10-year U.S. Treasury note rose
14/32 in price to yield 1.751 percent.