* Souring U.S. budget talks cap equity market gains
* Wall St stocks seen flat to lower
* Yen firms after BOJ eases as expected
* Oil and copper dip on 'fiscal cliff' fears, gold steady
By Richard Hubbard
LONDON, Dec 20 World shares steadied near
17-month highs on Thursday, ending a week-long rally, while oil
slipped as the latest setback in talks to avert a U.S. fiscal
crisis kept buyers away.
The rising tension in the U.S. budget negotiations left
futures prices for the S&P 500 and the Dow Jones
pointing to a flat to lower open on Wall Street as well.
In the currency markets, the Bank of Japan's widely expected
decision to ease policy for a third time in four months
encouraged traders who had sold yen ahead of the move to take
profits, sending the dollar and euro higher.
However, as trading winds down ahead of the holiday season
all markets remain highly sensitive to progress in Washington -
or the lack of it - in averting the automatic tax rises and
spending cuts that could tip the economy into a recession.
"The 'fiscal cliff' is a reality and I believe that markets
have got themselves into a hopeful state rather than a realistic
state," said Gerard Lane, equity strategist at Shore Capital.
MSCI's world equity index has risen steadily
over the past five weeks on optimism that a budget deal would
clear the way for stronger growth in 2013. It was steady near
342 points, not far from levels last seen in July 2011.
In Europe, the FTSEurofirst 300 index briefly
touched a new, 19-month peak of 1,143.04 points, before slipping
back to be little changed at 1,141.80.
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were all about 0.1 percent above
The wrangling over the U.S. budget has grown more heated
since Republican leaders said they would push ahead with their
own plan despite signs of strains within their own party and the
opposition of Democratic President Barack Obama.
Hopes remain high that policymakers can still reach a deal
by year-end, which would be positive for assets that benefit
from an improved growth outlook. But few investors were willing
to make any fresh bets at this stage.
"Despite the heated rhetoric, we expect a deal on the fiscal
cliff to be struck between Democrats and Republicans by the
deadline," BNP Paribas analyst Anne-Laure Tremblay said
"This should be mildly positive for risk appetite."
In the currency markets, the Bank of Japan's latest policy
move was the main driver of prices. On top of expanding its
asset-buying programme, the BOJ said it would review its
guidelines for medium- and long-term price stability at its next
policy-setting meeting in January - a signal of further easing.
The dollar fell 0.4 percent to 84.09 yen, off a
20-month high of 84.62 yen hit on Wednesday. The euro was down
0.1 percent at 111.57 yen, retreating from a 16-month
The dollar had gained more than 6 percent against in the
past five weeks as investors decided that Japan's new government
would push the BOJ into more aggressive easing steps. Many
players said there was still scope for further yen weakness.
"In the race to debase and weaken domestic currencies, the
BOJ is still running behind the Fed in terms of the scale of
asset purchases on both an absolute and relative basis," said
Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
The worries over the latest course of events in Washington
spread through the commodity markets, stoking concerns about
future of demand from the world's biggest consumer.
Brent crude slipped 21 cents to $110.15 a barrel
and U.S. oil fell 7 cents to $89.91.
Gold traded at around $1,668.90 an ounce, not far from its a
3-1/2-month low hit earlier this week of $1,661 an ounce.
It is on track for its biggest quarterly drop since the third
quarter of 2008 when the financial crisis hit hard.
London copper hit a three-week low, slipping by one percent
to $7,844 a tonne. That extended losses in the previous
session, when prices had dropped by more than 1 percent.