* World shares hit 1-month low, European shares slip
* Cut in Fed stimulus could come as early as next week
* Italian, Spanish bonds fall on media report on capital
* Copper, nickel prices advance on supply concerns
By Atul Prakash
LONDON, Dec 12 Global equities slipped to a
one-month low on Thursday after a provisional budget deal in
Washington prompted speculation the Federal Reserve policymakers
will start trimming its stimulus as early as next week.
"The chances of them doing something next week are certainly
rising," said Paul Kavanagh, a partner at Killik.
U.S. data releases were being watched for clues on the
strength of the economy, since greater strength means the Fed
can act with less risk of curtailing economic growth. Key
releases on Thursday included first-time jobless claims for the
week ended Dec. 7 and retail sales for November.
This week's budget pact eased some of the fiscal drag on the
U.S. economy and improved the chances the Fed's will scale back
its bond-buying operations at the Dec. 17-18 meeting. The
stimulus programme has helped equities to hit multi-year highs.
"There have been reasonable gains this year for long-only
investors," Kavanagh said. "And what (Fed policymakers) probably
don't want to see is too much volatility or certainly too much
downside, and I suspect there are moves to try and protect the
returns at the moment."
The MSCI world equity index, which tracks
shares in 45 countries, fell 0.4 percent to a one-month low by
1220 GMT, while the pan-European FTSEurofirst 300
extended losses to hit a new two-month low after a surprise fall
in the euro zone's industrial output in October.
The index was last down 0.7 percent at 1,247.42 points. It
is still up about 10 percent in 2013, but has fallen 5 percent
since climbing to a five-year high last month on lingering
concerns the Fed's accommodative policies might not last longer.
"We think there is a chance that Fed tapering will begin
next week. Recent GDP data, ISM manufacturing data and the jobs
report all lend support to tapering sooner rather than later,"
said Tim Gregory, chief investment officer at Psigma Investment
Management, said. "However, whether it is December, January or
March is less important than the fact that the Fed feels able to
make a start on withdrawing."
A note of caution was added after a source said ex-Bank of
Israel governor Stanley Fischer had been asked to be the Fed's
next vice chair. Fischer is considered less dovish than Janet
Yellen, the nominee to lead the Fed.
European stocks tracked weaker overseas markets. MSCI's
broadest index of Asia-Pacific shares outside Japan
fell 0.8 percent on Thursday and U.S. shares
earlier closed 0.8 to 1.4 percent lower.
ITALIAN, SPANISH BONDS SLIP
Italian and Spanish bonds fell after a media report said the
European Central Bank could make euro zone banks hold capital
against sovereign bonds, to keep weak lenders from using its
cash to buy up debt from crisis-hit countries.
The Financial Times quoted European Central Bank executive
board member Peter Praet as saying the bank could combine its
new powers as chief banking regulator with its existing role as
currency issuer to toughen up requirements on sovereign bonds.
"The ECB and in particular the Bundesbank is worried about
the amount of sovereign bonds that Italian and Spanish banks
have taken on their balance sheets," said RIA Capital Markets
strategist Nick Stamenkovic.
A trader said if the ECB decided to introduce such rules, it
was going to happen gradually over a period of time. It was not
a big reason to sell, he said, but some investors had decided to
book profits after the report.
However, ECB President Mario Draghi said it would not
unilaterally assign risk weightings to the various euro zone
government bonds on banks' balance sheets and the issue should
be agreed on globally.
In Slovenia, 10-year yields fell to their lowest level in
nearly nine months after the results of bank stress tests
matched what the government said it could afford without seeking
an international bailout.
In the currency market, the euro hovered near a two-year
high against the dollar and a five-year peak versus the yen,
helped by higher short-term market rates and year-end
repatriation by European banks shoring up balance sheets.
Among commodities, copper and nickel climbed to five-week
peaks on fears that a planned Indonesian ban on ore exports next
month could crimp exports from the world's fifth-biggest copper
mine and nickel suppliers.
However, gold, which is down 25 percent this year, slid on
fresh speculation about the Fed's likely move. Ultra-loose
monetary policy is generally bullion-friendly, since it keeps
interest rates low and raises inflation fears.