GLOBAL MARKETS-Shares, euro climb as U.S. budget talks awaited

Thu Dec 27, 2012 8:23am EST

* U.S. set for last-minute scramble to avert "fiscal cliff"
    * European shares edge higher after return from holidays
    * Yen hits 21-month low as monetary easing eyed

    By Marc Jones
    LONDON, Dec 27 (Reuters) - World shares and the euro edged
higher on Thursday as U.S. lawmakers prepared to resume
negotiations to avoid a fiscal crunch, while the yen hit a
two-year low on the prospect of drastic monetary easing.
    President Barack Obama will try to revive budget crisis
talks which stalled last week when he returns to Washington on
Thursday after cutting short his Christmas holiday in Hawaii.
    In a sign that there may be a way to break the deadlock,
Republican House of Representatives Speaker John Boehner urged
the Democrat-controlled Senate to act to pull back from the
so-called "fiscal cliff" and offered to at least consider any
plan the upper chamber produced. 
    European shares were up 0.3 percent and heading
back towards last week's 19-month high at 1300 GMT as trading
resumed after the Christmas holiday break.
    The MSCI global index was also up 0.3
percent ahead of what was expected to be a flat open on Wall
Street. Japan's Nikkei had earlier hit a 21-month high, amid
signs the country's authorities are preparing to ease policy
considerably. 
    "The majority view is that a solution will be reached on the
'fiscal cliff' in a timely fashion," said XBZ European equity
options broker Mike Turner.
    "Most people are taking a neutral stance, as opposed to
trying to second-guess the outcome of the U.S. talks," he said.
    Economists warn that the "fiscal cliff" of higher taxes and 
spending cuts worth $600 billion and set to kick in from
January, could push the world's largest economy into recession,
dragging other countries with it.
  
    
    YEN SLUMP
    Such concerns underpinned the dollar as the fiscal impasse
continues to sap investor appetite for risky assets, raising the
dollar's safe-haven appeal.
    Against the Japanese currency, the dollar at 85.87 yen
 reached its highest since September 2010, with investors
accelerating their yen sales after 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 now 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.
 
    "The present yen weakness is related to the new government,
which seems devoted to push through both fiscal and monetary
policy changes and take direct measures to weaken the yen," said
Richard Falkenhall, currency strategist at SEB in Stockholm. 
    "Yen weakness could very well continue. We see the yen as
extremely over-valued considering the weak fundamentals we see
in Japan," he added.    
    The euro, which has been supported in recent weeks by an
improvement in the outlook towards the euro zone, climbed 0.4
percent to $1.3266.
    French consumer confidence data helped consolidate the rise
as it rose unexpectedly in December to the highest level since
August despite increased concerns about rising unemployment.
    Things appeared less certain in Italy though. Morale among
manufacturers rose slightly for the second month in a row but
broader business morale fell to its lowest level on record.
 

    NO PANIC
    While focus will be firmly on the budget discussions in
Washington, economic data due at 1330 GMT includes weekly
initial jobless claims where little change is expected, and the
Chicago Fed Midwest Manufacturing Index for November. 
    In commodity markets, London copper rose 1.7 percent
to a one-week high of $7,945.25 a tonne after some positive data
from China, the world's top copper buyer whose economy is now a
key driver of global growth.
    Profits earned by China's industrial companies jumped 22.8
percent in November from a year ago, accelerating from October's
20.5 percent, Beijing reported. "People are
hopeful that China's economy will recover next year," said Zhang
Ao, an analyst at Minmetals Futures.    
    The U.S. wrangling hung over oil and gold, however. Brent
crude slipped back below $111 a barrel although the
Chinese data, unrest in the Middle East and hopes that the new
Japanese government's policies would spur demand, helped limit
the drop. 
     Gold fell $4.58 an ounce to $1,654.91. It has come
off a 4-month low of $1,635.09 struck last Thursday, but remains
below a record high of around $1,920 hit in September 2011.
    With bond investors also focusing on Washington, German
government bond futures were little changed at 144.72.
 
    Analysts believe that even if a U.S. compromise is not
reached before year end - as initially expected - budget
measures could be agreed in January and enforced retroactively.
    "Safe-haven assets (such as Bunds) should remain supported
as long as the fiscal cliff debate remains unsolved. But there
is no sense of panic. The market has come to some sort of
understanding that the end of December is not an extremely hard
deadline," said Commerzbank rate strategist Rainer Guntermann.
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