GLOBAL MARKETS-Stocks down on Sen. Reid's 'cliff' remarks; yen falls

Thu Dec 27, 2012 3:41pm EST

* U.S. stocks trim losses as Sunday session to be held
    * Brent settles down slightly; U.S. bond prices up
    * Yen hits 2-year low as monetary easing eyed


    By Caroline Valetkevitch
    NEW YORK, Dec 27 (Reuters) - World stocks slipped on
Thursday after U.S. Senate Majority Leader Harry Reid said 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.
    Reid, a Democrat, 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.
    In another session driven by headlines on the budget talks,
all three major U.S. indexes fell more than 1 percent following
Reid's comments. But they sharply cut losses in late-session
trading as the U.S. House of Representatives set a work session
for Sunday ahead of the Dec. 31 deadline for reaching a deal.
    On Wall Street, the Dow Jones industrial average was
down 16.30 points, or 0.12 percent, at 13,098.29, well off its
lows. The Standard & Poor's 500 Index was down 1.66
points, or 0.12 percent, at 1,418.17. The Nasdaq Composite Index
 was down 3.33 points, or 0.11 percent, at 2,986.83. 
    Shares of U.S. retailers fell for a second day following the
Christmas holiday. The Morgan Stanley retail index was
down 0.4 percent. 
    The MSCI global index was last down 0.1
percent, while European shares ended down 0.04 percent.
    "Going over the 'cliff' is the surest way to get the tax
increases and spending cuts that are the objective of
politicians on both sides of the aisle," said Joseph Cangemi,
managing director at ConvergEx Group in New York.
    "This has been a giant theatrical event to accomplish what
they had each set out to do."
     President Barack Obama returned 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 86.15 yen on Reuters data, its
highest since mid-August 2010. It was last up 0.5 percent at
86.01 yen. Investors took out option barriers at 86 yen and
stop-loss buy orders above 86.10. 
    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.
     The dollar has risen 12 percent against the yen in 2012, on
track for its biggest annual gain since 2005. Yen selling has
accelerated in the past two months on speculation Japan's new
Prime Minister Shinzo Abe will pursue policies to weaken the
Japanese currency. 
    "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 was little changed at $1.3221. The euro
tends to benefit when U.S. budget negotiations run smoothly, but
when there are snags, investor flows go to 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 5/32
higher in price, yielding 1.7303 percent, compared with being
down by 2/32 before the confidence data and Reid's remarks.  
    Brent crude futures ended down slightly as the unresolved
U.S. budget talks left open the possibility that mandated tax
hikes and spending cuts could be enacted, which could push the
top oil-consuming economy into recession. 
    Brent February crude fell 27 cents, or 0.24 percent,
to settle at $110.80 a barrel. U.S. February crude 
slipped 11 cents, or 0.12 percent, to settle at $90.87.
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