GLOBAL MARKETS-US stocks fall 1 pct after Reid 'cliff' remarks; yen down

Thu Dec 27, 2012 2:13pm EST

* U.S. stocks down 1 pct after Reid remarks; world stocks
fall
    * Oil eases; U.S. bond prices up
    * Yen hits 2-year low as monetary easing eyed


    By Caroline Valetkevitch
    NEW YORK, Dec 27 (Reuters) - U.S. stocks fell more than 1
percent on Thursday after comments from U.S. Senate Majority
Leader Harry Reid that the United States may be poised to go off
the "fiscal cliff," while the yen hit a two-year low on
expectations of aggressive monetary stimulus.
    Democrat Reid criticized Republicans for refusing to go
along with any tax increases as part of a U.S. budget remedy and
said the economy seemed to be heading over the fiscal cliff of
impending tax hikes and spending cuts. 
    Economists warn that the $600 billion in higher taxes and
spending cuts set to kick in from January could push the world's
largest economy into recession, dragging other countries with
it.
    For weeks, markets have been driven by any new information
on the status of the fiscal cliff talks. All three major U.S.
stock indexes fell more than 1 percent after Reid's comments and
world stocks also were driven lower.
    On Wall Street, the Dow Jones industrial average was
down 132.98 points, or 1.01 percent, at 12,981.61. The Standard
& Poor's 500 Index was down 15.23 points, or 1.07
percent, at 1,404.60. The Nasdaq Composite Index was
down 31.96 points, or 1.07 percent, at 2,958.19.
    Shares of U.S. retailers fell for a second day following the
Christmas holiday. The Morgan Stanley retail index was
down 1.4 percent while the SPDR S&P Retail Trust lost
1.1 percent. 
    The MSCI global index was last down 0.4
percent, while European shares ended down 0.04 percent.
    Frank Lesh, a futures analyst and broker at Futurepath
Trading in Chicago, said his clients have been delaying trading
due to uncertainty about the negotiations' outcome, making the
year-end period quieter than usual.  
   "With the added drama in Washington, we have got even more
people sidelined," he said. "No one knows how this turns out or
how the markets are going to react to it." 
     U.S. President Barack Obama is traveling back to Washington
on Thursday, cutting short his holiday to try to get a budget
deal with Republican lawmakers.  
  
    
    EURO DIPS, YEN SLUMPS
    The dollar rose to 85.92 yen, its highest since
August 2010. It was last up 0.4 percent on the day at 85.91 yen
with option barriers cited at 86 yen and stop-loss buy orders
above 86.10 yen. 
    Investors accelerated their yen sales after Japanese Prime
Minister Shinzo Abe said his newly formed government would
pursue a bold monetary policy, a flexible fiscal policy and a
growth strategy to encourage private investment.
    The yen has fallen roughly 10.5 percent versus the dollar in
2012, its biggest annual drop since 2005. At the same time,
Japan's benchmark Nikkei is now up 22 percent for the year.
 
    "Yen weakness, based on expectations that the new Japanese
government will succeed in driving the dollar to 90 yen with a
combination of more aggressive monetary and fiscal policy, is
offering support to other currencies," said Marc Chandler,
global head of currency strategy at Brown Brothers Harriman in
New York.
    The euro traded at $1.3216, down slightly for the day
and below an eight-month high of $1.3308 hit last week.
   The euro tends to benefit when U.S. budget negotiations run
smoothly, but when there are snags, investor flows go into the
safe-haven and highly liquid dollar.
     
    U.S. BONDS TRADE HIGHER, OIL EASES
    Prices on longer-dated U.S. Treasuries were higher. The bond
market began trimming its decline earlier on data that showed a
bigger-than-expected drop in American consumer confidence in
December, spurring worries about flagging consumer spending
causing a U.S. recession. 
    Benchmark 10-year Treasuries prices were 12/32
higher in price, yielding 1.7077 percent, compared with being
down by 2/32 before the confidence data and Reid's remarks.
    Oil prices eased in choppy trading as the unresolved U.S.
budget left open the possibility that looming mandated tax hikes
and spending cuts could push the economy of the No. 1 oil
consuming nation into recession.
    Brent February fell 41 cents to $110.66 a barrel,
while U.S. February crude was down 26 cents at $90.72.
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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