* Bonds rise as tame U.S. inflation supports Fed easing
* Dollar skids broadly as US data affirms easy Fed policy
* Surge in Chinese factory activity lifts oil prices
By Wanfeng Zhou and Herbert Lash
NEW YORK, Dec 14 Global shares fell on Friday on
unease over the lack of progress in U.S. fiscal negotiations and
on signs of a deepening recession in the euro zone, but data
indicating strong expansion in Chinese manufacturing helped lift
China's vast manufacturing sector expanded in early December
at the fastest pace in 14 months as new orders and employment
rose, a survey showed, adding to evidence of a pick-up in the
The dollar fell from a near nine-month high against the yen
while the euro surged to its highest level against the greenback
since early May as U.S. inflation data affirmed the Federal
Reserve's ultra-easy monetary policy.
Talks between President Barack Obama and House of
Representatives Speaker John Boehner on budget negotiations
designed to avert the "fiscal cliff" were seen at an apparent
standstill on Friday. Some $600 billion in tax hikes and
spending cuts that are set to begin in January, unless lawmakers
reach a deal, are seen as a threat that could tip the U.S.
economy back into recession.
Frustration has mounted over the lack of progress, reflected
in a 0.6 percent drop in the S&P 500 on Thursday.
"The uncertainty that (the fiscal talks) is creating is
basically holding the markets hostage in the short term," said
Andres Garcia-Amaya, global market strategist at J.P. Morgan
Funds, in New York.
The Dow Jones industrial average closed down 35.71
points, or 0.27 percent, at 13,135.01. The Standard & Poor's 500
Index fell 5.87 points, or 0.41 percent, at 1,413.58. The
Nasdaq Composite Index slid 20.83 points, or 0.70
percent, at 2,971.33.
Weighing on the Nasdaq was a 3.8 percent drop in shares of
tech giant Apple after UBS cut its price target to $700
from $780 and the iPhone 5 debuted in China to a cool reception.
The stock, which closed at $509.79, has tumbled in recent months
for several reasons after peaking at $705 in September,
including investors locking in profits ahead of scheduled
capital-gains increases for next year.
The MSCI global stock index fell 0.04
percent to 336.67 points.
European shares slipped as investors banked profits after
hitting 18-month highs earlier in the week, and some said the
pan-European index was vulnerable to a deeper correction the
longer U.S. budget talks remain at an impasse.
The FTSEurofirst 300 closed down 0.1 percent at
"The bad news is, in large part, we've seen the market
ignore relatively good news in the economic data stream as we
focus on the fiscal cliff," said Art Hogan, managing director
of Lazard Capital Markets in New York.
China's manufacturing data was encouraging for its key
trading partners, including the United States, and for the
prospects for world economic growth. China is the world's
second-largest oil consumer.
Brent crude settled $1.24 higher at $109.15 a
barrel, the first weekly gain this month after two weeks of
losses. U.S. crude rose 84 cents to settle at $86.73.
But the outlook for the euro zone economy remains gloomy.
Disappointing German manufacturing sector figures and a rise
in euro zone unemployment overshadowed a small pick-up in
purchasing manager data.
The German manufacturing purchasing managers index slipped
to 46.3 in December from 46.8 the previous month, remaining well
below the 50 threshold that divides growth from contraction and
missing the consensus Reuters poll forecast for a rise to 47.2.
"All in all, the picture for the(euro zone) economy has not
changed much after today's data," said Annalisa Piazza, an
economist at Newedge Strategy in London. "GDP is expected to
continue to contract in Q4-12, and there are no signs of
improvement for the first part of next year."
The euro rose 0.64 percent to $1.3160, while the
dollar slipped 0.15 percent to 83.48 yen.
The yen had earlier weakened after Japanese media reported
the conservative Liberal Democratic Party is set for a
resounding victory in elections on Sunday, cementing speculation
that the party's leader, Shinzo Abe, will be in a strong
position to push for bold monetary easing.
"Abe has been making pretty strong comments about inflation
targeting, and if we look at the economy Japan needs a lower
currency without a doubt," said Maurice Pomery, managing
director at consultants Strategic Alpha.
"This is going to put pressure on the BoJ. It's the start of
a move lower in the yen that has a long way to go."
The benchmark 10-year U.S. Treasury note was up
8/32 in price to yield 1.7041 percent.
The U.S. Labor Department said its Consumer Price Index
dropped 0.3 percent last month as a sharp decline in gasoline
prices offset increases in other areas. It was also the largest
drop since May and followed a 0.1 percent gain in October.
"The crux of this report is simply that the inflationary
backdrop remains very benign, providing the Fed with
considerable breathing room to keep monetary policy
accommodative," said Millan Mulraine, a senior economist at TD
Securities in New York.