* 'Fiscal cliff' uncertainty limits U.S. stock gains
* Euro returns to 6-week high on Greece optimism
* Treasuries tread water, commodities struggle on world
By Steven C. Johnson
NEW YORK, Dec 4 U.S. stocks edged lower on
Tuesday as investors fretted about Washington's ability to avoid
a year-end budget crisis, but a Greek plan to buy back debt
pushed the euro to a six-week high.
Commodities also struggled as weak manufacturing data and
tense U.S. budget talks stoked worries about the world economy.
Markets fear the United States could slip into recession if
$600 billion of tax hikes and spending cuts are allowed to start
taking effect in January. The White House and Congress have yet
to agree on a long-term deficit reduction plan.
"This back-and-forth contentious debate is not helping
investor attitudes and not boosting confidence in Washington,"
said Jack Ablin, chief investment officer at Harris Private
Bank, who added the uncertainty prevents firms from hiring.
Data this week showed U.S. manufacturing contracted in
November, its worst month in more than three years.
"It's really starting to hurt the economy, and that
increases trepidation among investors," Ablin said.
The Dow Jones industrial average was up 2.91 points,
or 0.02 percent, at 12,968.51. The Standard & Poor's 500 Index
was down 2.84 points, or 0.20 percent, at 1,406.62. The
Nasdaq Composite Index was down 16.19 points, or 0.54
percent, at 2,986.00.
Worries about U.S. lawmakers' inability to compromise on
fiscal issues sapped earlier gains in European shares, with the
FTSEurofirst 300 index retreating from a 17-month peak.
The euro, however, remained near a six-week high above
$1.31, boosted by a Greek debt buyback plan and encouraging news
from Portugal and Spain. Greece's buyback is a crucial part of a
deal reached last week by international lenders to cut the
country's debt pile, and needs to be completed before the IMF
can release its emergency aid.
"Greece is on track with its debt buyback, Spain came out
and said it would take the 40 billion for its banks, and
Portugal will get its next round of funding," said Heinz-Gerd
Sonnenschein, equities strategist at Postbank in Germany.
"So with it looking like Europe is on track, it is now over
to the U.S. (to find a fiscal cliff deal)," he said.
President Barack Obama will meet with U.S. governors at the
White House on Tuesday to talk about the issue.
U.S. government bond prices were little changed as most
investors kept to the sidelines in the absence of progress on
budget negotiations. The benchmark 10-year Treasury
was up 5/32 to yield 1.60 percent.
"When things are drifting like this, we see some money
gravitating to investment-grade corporate bonds," said Jim
Vogel, interest rate strategist with FTN Financial in Memphis,
Headlines about the back-and-forth proposals by Republicans
and Democrats have monopolized attention on Wall Street, though
many investors still expect a deal before the year-end deadline,
which could trigger a rally.
"Support (for the market) is based on a belief that
Washington will come to some agreement before we go over the
fiscal cliff," said Art Hogan, managing director of Lazard
Capital Markets in New York. "On the first show of flexibility
from either side, we'll get a relief rally."
With the euro zone mood lifting, Spanish, Italian and Greek
bonds rose while German Bunds stayed on the back foot, though
losses were limited by the potential impasse in budget talks.
Italian 10-year yields fell 5 basis points to
4.40 percent, while the Spanish equivalent was 3 ticks down at
5.24 percent, extending Monday's falls after
Greece unveiled better-than-expected terms for the debt buyback.
Lingering worries about the world economy, though, pushed
oil and gold lower, while copper was little changed. U.S. crude
oil dipped 78 cents to $88.31 a barrel, and gold
fell about 1 percent to its lowest in nearly a month after
prices broke below key support levels.
Weaker manufacturing data raised concern about fragile
global growth, which could hurt demand for energy.