* Japan LDP back in power after landslide election win
* Yen slumps to 20-month low vs dollar, 7-mth low vs euro
* Shares, oil dip on U.S. fiscal uncertainty
* U.S. stocks seen little changed, Apple in focus
By Richard Hubbard
LONDON, Dec 17 A win by Japan's conservative
Liberal Democratic Party lifted the dollar to a 20-month high
against the yen on Monday, while uncertainty over the prospects
for a U.S. budget deal sent European shares lower.
U.S. stock index futures pointed to mixed open on Wall
Street where tech giant Apple's shares will be in the
spotlight because of sharp falls in pre-market trade after
Citigroup cut its rating for the stock.
The biggest moves of the day came in the currency market
following a landslide election victory for Japan's LDP on Sunday
which opened the way for a shift in economic strategy designed
to lift the world's third largest economy out of recession.
The triumph was seen as piling pressure on the Bank of Japan
to ease further at its next policy meeting, which ends on
Thursday, setting the stage for an even bigger fall in the yen.
"I wouldn't be surprised if we were talking about, in March
or April time, a move that has taken us up into the mid-nineties
(for dollar/yen)," said Simon Derrick, chief currency strategist
at Bank of New York Mellon.
"I think when it moves it's quick and I think it's going to
The dollar was up 0.3 percent on the day at 83.70 yen
, having earlier hit 84.48 yen after the election result
became clear, its strongest level since April 2011.
The yen's fall also boosted the euro, which jumped to around
111.30 yen, its highest since late March and near its year's
high of 111.43 yen.
Japan's Nikkei stock index bucked the downward trend
in Asian markets to close at an 8-1/2-month high on expectations
the weaker yen will boost exports by Japanese firms.
Meanwhile investors were still focused on the year-end
deadline to avoid the imposition of steep U.S. tax hikes and
spending cuts, known as the "fiscal cliff", which could send the
giant economy back into recession.
A new proposal for tax hikes on incomes over $1 million a
year from U.S. Republican House Speaker John Boehner on Sunday
was seen as a step forward but was still some way from the
position of President Barack Obama.
Anxiety over the unresolved differences between the two
sides is holding back a rally in equity and commodity markets
spurred by the easier monetary policies of the world's major
"Global stock prices have almost doubled since March 2009
with total return indices in the U.S., UK, Germany and some
emerging markets at or near all time highs," said Trevor
Greetham, director of asset allocation at Fidelity Worldwide
The MSCI world equity index edged down 0.02
percent to 336.30 points, though in the last month it has added
about six percent for a year to date gain of 12.3 percent.
After making strong gains in recent weeks on the brightening
outlook, the FTSE Eurofirst 300 index was down 0.3
percent on Monday following on from a 0.5 percent decline in
Asia share markets outside Japan.
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were flat to 0.5 percent lower.
The major debt markets, however, did take some encouragement
from the Boehner proposal on taxes with U.S. Treasury prices
edging lower, while German 10-year cash yields
rose 0.8 basis points to 1.37 percent.
But traders were cautious about reading too much into the
"It's important that there's been a shift, so to that extent
it's a positive development ... (but) people are now wary of
over-interpreting what politicians say," said Marc Ostwald,
strategist at Monument Securities in London.
In oil markets investors drew support from a brighter
economic outlook for top energy consumer China, although the
market remained skittish over the potential impact a failure to
reach a budget deal would have on future demand.
"The U.S. economy is on a good track but we need the
resolution of the fiscal cliff," said Andrey Kryuchenkov,
analyst at VTB Capital. "Until then, from the point of view of
investors, let's wait and see when we have a definite solution."
U.S. crude was unchanged at $86.73 a barrel while
Brent dipped 0.15 percent to $108.03.
Gold prices were down for a third straight session in line
with the softer tone on stock markets.
The precious metal hit a two-week high above $1,720 an ounce
last week after the U.S. Federal Reserve pledged to buy $45
billion a month in longer-term Treasuries last week, a
potentially inflationary move that was expected to support gold.
But the worries over the fiscal cliff and year-end
positioning brought the spot gold down 0.2 percent to
around $1,689.50 an ounce.