* Euro falls 0.4 pct as rate cut talk grows
* Bundesbank cuts growth outlook, hints at recession
* European stocks flat, ending 4 days of gains
* U.S. markets brace for November nonfarm payrolls
By Richard Hubbard
LONDON, Dec 7 The darkening outlook for Europe's
economy sent the euro to a nine-day low on Friday and halted a
rally in share markets ahead of November's U.S. jobs report,
which could fuel hopes of more monetary policy easing.
Analysts expect the giant U.S. economy to have added about
93,000 extra jobs in the month, compared with October's gain of
171,000, as superstorm Sandy took its toll on the figures. The
jobless rate is seen holding steady at 7.9 percent.
U.S. stock index futures pointed to a slightly weaker tone
ahead of the data, and U.S. Treasury yields were broadly steady
near three-month lows of 1.58 percent.
Uncertainty over whether U.S. lawmakers will agree on a deal
to avert spending cuts and tax increases that will otherwise be
triggered in early 2013 has been supporting safe-haven debt like
Treasury bonds while limiting gains in stocks, and the jobs data
may not change the picture significantly.
"We suspect this set of payroll numbers may be less market
sensitive than usual, largely because markets are uncertain
about the impact from the superstorm," said Philip Shaw, chief
economist at Investec.
The euro was down 0.4 percent at $1.2925, extending a
retreat from a seven-week peak of $1.3127 hit on Wednesday, on
talk that the region's grim economic outlook could trigger an
early rate cut by the European Central Bank.
The gloom surrounding the euro zone deepened on Friday when
Germany's central bank cut its growth outlook and pointed to
risks of a recession as the three-year-old debt crisis takes its
toll on the region's largest economy.
The bleak warning came just a day after the ECB slashed its
own economic forecasts for the entire 17-nation euro area next
year, while leaving its main interest rate at a record low 0.75
percent for the fifth month running.
"The discussion on interest rates is what started the slide
in the euro in the last 24 hours, and the Bundesbank report has
just compounded that," said Neil Mellor, currency strategist at
Bank of New York Mellon.
Elsewhere in the foreign exchange market the yen briefly
rose after a strong earthquake struck northeast Japan,
triggering a one-metre tsunami. A more powerful earthquake in
March 2011 led to a sharp rise in the yen on expectations that
Japanese investors would bring funds held abroad back home.
The shift in focus back to Europe's problems and away from
the outlook for China and the United States, where hopes had
been growing of gradual strengthening in economic activity,
brought to a close the rally in European shares.
The FTSEurofirst 300 index of top European shares,
which hit an 18-month peak on Thursday, was virtually unchanged
at 1,130 points, while Germany's Dax, London's FTSE 100
, and Paris's CAC-40 were all little changed.
"You cannot stand in the way of the numbers, which tell us
Europe will be in a recession next year and earnings will be
poor," said broker Justin Haque at Hobart Capital Markets.
The bad news also extended to the British economy, with
manufacturing output falling in October at the fastest pace
since June and well below most economists' forecasts. Analysts
said the data pointed to further contraction in the economy as a
whole in the fourth quarter.
The MSCI world equity index was also down
around 0.1 percent at 333.66, despite an earlier rally in Asian
markets which left MSCI's broadest index of Asia-Pacific shares
outside Japan up 0.5 percent, its third straight
weekly gain. The index has gained about 17 percent so far this
Riskier asset markets like equities and commodities have
been buoyed by signs of renewed economic momentum in regional
powerhouse China, but the growing concern about Europe is acting
as a drag on gains.
As a result oil prices barely moved on Friday, with Brent
crude one cent lower at $107.02, while U.S. crude
futures was 23 cents cheaper at $86.03.
"The big picture is that Europe is weak, U.S. is undecided
and China is strong, so the news flow from these three will be
what determines prices," said Jonathan Barratt, chief executive
of research firm Barratt's Bulletin.
Gold prices eased back below $1,700 an ounce, but again
trading was cautious ahead of a U.S. employment report.