NEW YORK (Reuters) - U.S. and European shares took a breather on Friday after a strong rally on a long-awaited euro zone rescue deal, but a weak sale of Italian bonds showed investor confidence in the agreement was shaky.
The euro eased from a seven-week high against the dollar, while oil and gold prices declined on skepticism over whether the debt deal is enough to staunch the crisis.
Italy’s 10-year borrowing costs topped 6 percent for the first time since the launch of the euro after a debt auction, underscoring the country’s vulnerability at the center of the crisis.
It was the first euro zone bond auction after policymakers struck an agreement on Thursday to slash Greece’s debt burden and strengthen the European Financial Stability Facility, the region’s rescue fund.
Adding to concerns, the head of the EFSF played down hopes of a quick deal with China to throw its support behind efforts to resolve the crisis. But he said he expected Beijing to continue to buy bonds issued by the fund.
“I think we have a long way to go with this (European debt) mess. I still see huge risks,” said Stanley J.G. Crouch, who oversees $2 billion as the chief investment officer of Aegis Capital in New York.
U.S. stocks ended mixed in quiet trading after rallying 3 percent the previous day, closing out a fourth week of gains.
The Dow Jones industrial average .DJI ended up 22.56 points, or 0.18 percent, at 12,231.11. The Standard & Poor's 500 Index .SPX added 0.49 point, or 0.04 percent, at 1,285.08. The Nasdaq Composite Index .IXIC slipped 1.48 points, or 0.05 percent, at 2,737.15.
The FTSEurofirst 300 .FTEU3 index of leading European shares ended 0.2 percent lower at 1,018.14.
MSCI’s all-country world stock index .MIWD00000PUS was last up 0.5 percent at 319.22, after hitting its highest level in nearly three months and posting its best week since July, 2009.
Emerging market shares .MSCIEF rallied 1.9 percent.
While there are still questions over implementing the European deal, some analysts said investors investors appeared satisfied by Europe’s progress.
“For (markets) to not sell off is as much a positive sign as anything,” said Andrew Slimmon, managing director at Global Investment Solutions of Morgan Stanley Smith Barney in Chicago.
Investors’ focus was shifting to a meeting of the Group of 20 nations next week in Cannes, France. They will watch for any coordinated efforts or pledges to help stabilize world financial markets, which have been battered this year by Europe’s debt crisis and a slowing world economy.
The euro slipped 0.2 percent to $1.4161, retreating from a seven-week high of $1.4247 set on Thursday. The dollar steadied after falling 1.8 percent against a basket of currencies the previous day in its biggest daily drop in more than two years.
“We’re seeing the market reposition itself,” said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York. “Going into the two (European) summits, speculators were long dollars. They have now exited those positions and players are fine tuning.”
Analysts said much of this month’s 5.8 percent rally in the euro against the dollar was driven by a squeeze of short positions, with speculators reluctant to build bets against the euro ahead of the G20 and a U.S. Federal Reserve meeting next week.
Any hints the Fed is considering another round of monetary easing to boost the U.S. economy or of a commitment from G20 players to support the euro zone bailout fund would likely push the euro higher.
The U.S. dollar index last traded up 0.2 percent at 75.053 .DXY. Against the yen, the dollar slipped 0.2 percent to 75.79, keeping alive the risk of intervention by Japanese authorities to curb the yen’s rally.
Brent crude settled down $2.17 at $109.91. U.S. crude dropped 64 cents to settle at $93.32.
Spot gold retreated to around $1,741 an ounce from a one-month high of $1,751.99.
U.S. Treasuries prices rose as the highest yields in more than 2-1/2 months drew buyers. The benchmark 10-year U.S. Treasury note was up 18/32, its yield at 2.32 percent.
Additional reporting by Angela Moon and Nick Olivari; editing by Dan Grebler