* Euro returns to 6-week high on Greece optimism
* "Fiscal cliff" uncertainty limits U.S. stock gains
* Treasuries tread water, commodities struggle on world
By Steven C. Johnson and Marc Jones
NEW YORK/LONDON, Dec 4 The euro hit a six-week
high on Tuesday as Greece's plan to buy back debt cheered
investors, though worries about Washington's ability to avoid a
year-end budget crisis kept U.S. stocks in check.
Markets fear the U.S. economy will slip into recession if
$600 billion of tax hikes and spending cuts are allowed to take
effect in January. The White House and Congress have yet to
agree on a long-term deficit reduction plan.
Commodities also struggled as weak manufacturing data and
the U.S. budget talks fanned concerns about the health of the
European shares and the euro, however, rose on Greece's
buy-back plan and encouraging news from Portugal and Spain,
adding to hopes that the euro zone was finally getting a handle
on a multi-year debt crisis. The euro extended its recent
rally, hitting a six-week high above $1.31.
"Greece is on track with its debt buy back, Spain came out
and said it would take the 40 billion for its banks, and
Portugal will get its next round of funding," said Heinz-Gerd
Sonnenschein, equities strategist at Postbank in Germany.
Greece's buyback is a crucial part of a deal reached last
week by international lenders to cut the country's debt pile,
and needs to be completed before the IMF can release its
"So with it looking like Europe is on track, it is now over
to the U.S. (to find a fiscal cliff deal)," Sonnenschein said.
Worries about U.S. lawmakers' inability to compromise on
fiscal issues sapped earlier gains in European shares, with the
FTSEurofirst 300 index retreating from a 17-month peak.
U.S. indexes were mixed, with the Dow Jones industrial
average rising 35.88 points, or 0.28 percent, at
13,001.48. The Standard & Poor's 500 Index was up 2.09
points, or 0.15 percent, at 1,411.55. The Nasdaq Composite Index
was down 2.70 points, or 0.09 percent, at 2,999.50.
Headlnes about the back-and-forth proposals by Republicans
and Democrats have monopolized attention on Wall Street, though
many investors still expect a deal before the year-end deadline,
which could trigger a rally.
"Support (for the market) is based on a belief that
Washington will come to some agreement before we go over the
fiscal cliff," said Art Hogan, managing director of Lazard
Capital Markets in New York. "On the first show of flexibility
from either side, we'll get a relief rally."
U.S. government bond prices were little changed as most
investors kept to the sidelines in the absence of progress on
budget negotiations. The benchmark 10-year Treasury was up 1/32
to yield 1.62 percent.
"When things are drifting like this, we see some money
gravitating to investment-grade corporate bonds," said Jim
Vogel, interest rate strategist with FTN Financial in Memphis,
With the euro zone mood lifting, Spanish, Italian and Greek
bonds rose while German Bunds stayed on the back foot, though
losses were limited by the potential impasse in budget talks.
Italian 10-year yields fell 5 basis points to
4.40 percent, while the Spanish equivalent was 3 ticks down at
5.24 percent, extending Monday's falls after
Greece unveiled better-than-expected terms for the debt buyback.
Lingering worries about the world economy, though, pushed
oil and gold lower, while copper was little changed. U.S. crude
oil dipped 78 cents to $88.31 a barrel, and gold
fell about 1 percent to its lowest in nearly a month after
prices broke below key support levels.
Data this week showed the U.S. manufacturing sector
contracted in November, its worst month in more than three
years, and that raised worries about demand for energy.