Europe Factors to Watch-Lower start eyed as US economy nears 'cliff'

Mon Dec 31, 2012 2:20am EST

LONDON, Dec 31 (Reuters) - European stocks are seen opening lower in the
last session of the year on Monday as a stalemate in U.S. budget talks pushed
the world's largest economy to the edge of the "fiscal cliff" of austerity
measures.
    Trading will be muted as a number of European markets such as the French,
Dutch, Spanish and UK markets will only trade for half the session on Monday,
while those in Germany, Italy, Austria, Denmark, Norway, Sweden and Switzerland
will be closed. 
    Japanese financial markets were also closed on Monday for a public holiday.
    Futures for France's CAC were 0.2 percent lower at 0707 GMT.
Financial spreadbetters expected Britain's FTSE 100 to open 28 to 30
points lower, or down as much as 0.5 percent.
    The U.S. Senate will convene at 1600 GMT to continue discussion over
averting the steep tax increases and spending cuts due to kick in the new year,
but there were still significant differences between the two sides.
 
    If a last-minute deal fails to materialise, the scheduled tightening
measures were likely to send the U.S. economy into recession and curb global
growth. 
    "There is clearly a lot of uncertainty as to how this will all play out at
the moment and headline risk will remain rampant heading into the end of the
year," Stan Shamu, market strategist at IG, said in a trading note. 
    "Unless there are significant developments on the 'fiscal cliff' front, we
are likely to see a very subdued European session."    
    London's stock exchange will shut at 1230 GMT, while cash equity markets in
France, Belgium, the Netherlands, Spain and Portugal will be closing at 1300
GMT.
    The euro zone's blue chip Euro STOXX 50 index is poised to close
the year with a 13 percent gain, largely fuelled by cash injections from global
central banks to shore up the economy and restore confidence in the funding
markets.
    A pledge by the European Central Bank to do whatever it takes to save the
common currency had fuelled a 22 percent rally in the index since late July and
had driven earlier this month implied volatility on euro zone shares, a gauge of
investor fears of future share price swings, to lows not seen since 2007.
    The Euro STOXX 50 Volatility Index, or VSTOXX, which measures the
cost of options on euro zone blue chips, hit a 5-year low in mid-December before
staging a rebound last week as the impasse in U.S. budget talks prompted
investor to buy protection.
    Euro zone banks, a major holder of the region's sovereign debt, have
been the top gainers in the second half of the year, rising nearly 35 percent as
the ECB promised to buy the bonds of countries that apply for an international
bailout.
    France's CAC is up 14.6 percent year to date while Britain's FTSE
 was poised to end the year with a 6.3 percent gain.
    Germany's DAX has been the best performer among national indexes,
up 29 percent as it benefited from its exposure to Chinese consumer demand,
through groups such as car maker Volkswagen and industrial
conglomerate Siemens, and the relative resilience of Germany's
economy.
    The pace of activity in China's vast manufacturing sector hit its fastest
rate in December since May 2011, the final reading of the HSBC Purchasing
Managers' Survey showed on Monday, adding to evidence of an improvement in the
world's second-largest economy. 
    
--------------------------------------------------------------------------------
  
 MARKET SNAPSHOT AT 0719 GMT                            
                                         LAST  PCT CHG  NET CHG
 S&P 500                             1,402.43  -1.11 %   -15.67
 MSCI ASIA EX-JP                       547.78   0.09 %     0.50
 EUR/USD                               1.3185   -0.2 %  -0.0026
 USD/JPY                                86.12   0.13 %   0.1100
 10-YR US TSY YLD                       1.701       --     0.00
 10-YR BUND YLD                         1.315       --     0.00
 SPOT GOLD                          $1,663.91   0.54 %    $9.01
 US CRUDE                              $90.79  -0.01 %    -0.01
  
  > Investors agonise as U.S. teeters at edge of fiscal cliff     
  > U.S. stocks futures edge higher as 'cliff' talks continue     
  > TREASURIES-Prices gain for a third day on fiscal deal doubts  
  > Yen poised for biggest yearly drop vs dollar since 2005       
  > Gold ticks higher; on track for 12th annual gain              
  > Copper rises on upbeat China data; US fiscal talks weigh      
  > Brent holds above $110 as US fiscal cliff deadline draws near 
    
    COMPANY NEWS:

    IBERDROLA 
    Bolivia nationalised on Saturday two electricity distributors and two small
suppliers owned by the Spanish utility. 
    
    BANKIA 
    Spanish savers and pensioners who have seen their money wiped out by
investing in the state-rescued lender are likely to seek redress in court rather
than wait for any official inquiry, which looks increasingly unlikely.
 
    
    AUTO SECTOR 
    Carmaker Opel, the European unit of General Motors, is planning to
cut production by more than 10 percent in 2013 in light of the weak European car
market, a German magazine reported on Sunday. 
        
    ITALY ELECTIONS
    Mario Monti declared "mission accomplished" when he resigned as Italy's
prime minister, having seen off the debt crisis that loomed as he took office
just over a year ago but 2013 will test whether he has laid the foundations for
lasting economic change. 
    Silvio Berlusconi said on Saturday that outgoing Prime Minister Mario Monti
was plotting with the left in his centrist alliance's bid to win Italy's
national election in February, but centrist leaders denied any secret accord.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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