December 18, 2012 / 8:36 AM / 5 years ago

GLOBAL MARKETS-U.S. budget hopes lift world shares

* World shares near 3-month high
    * Nikkei at 8-1/2-mth peak, yen weak as BoJ easing eyed
    * Oil, copper, gold rise on improving growth sentiment

    By Marc Jones
    LONDON, Dec 18 (Reuters) - Signs of compromise in U.S. talks
to stop automatic tax hikes and spending cuts hurting the
economy next year pushed world shares towards a three-month high
on Tuesday and weakened appetite for safe-haven bonds and the
    The political divide narrowed on Monday night when President
Barack Obama proposed leaving lower tax rates in place for those
earning under $400,000, moving closer to the $1 million
threshold favoured by Republican House of Representatives
Speaker John Boehner. 
    European shares were up 0.3 percent and closing
in on 2012 highs ahead of the Wall Street open. The S&P 500
, Dow Jones industrial average and Nasdaq 100
 were also expected to rise.
    The rally pushed the MSCI index of global stocks
 up 0.2 percent to the brink of a three-month
high, with an 18-month peak also in sight.
    "It is reassuring that we are now seeing some signs of
compromise in the U.S.," said Daiwa Securities economist Tobias
Blattner. "A deal is key to avoiding a major global recession;
if we were to fall over the cliff, there would be massive fiscal
    The dollar, a traditional safe-haven currency, fell
to a two-month low against a basket of currencies, as the
broader market appetite for risk strengthened.
    Oil and copper, two commodities closely
attuned to global growth expectations both gained, although
profit taking saw the latter edge back to $8,026 per tonne as
the European session tailed off.
    "One would assume that this (fiscal cliff deal progress)
would be a positive for commodities," said Stephen Briggs,
metals strategist at BNP Paribas in London. "But because base
metals have been faring pretty well in the last few weeks, there
may be less mileage for them."
    Expectations of more monetary easing in Japan following
Sunday's return to power of the LDP and its pro-stimulus leader
Shinzo ŸAbe added to the optimism and provided additional
support for the Nikkei which hit an 8-1/2 month high.
    It also kept the yen near a 20-month low versus the dollar.
By 1300 GMT the dollar was worth 83.90 yen, up almost 7
percent compared to when it started rising in early November.
    "We are in a situation where we will see the government tell
the central bank what to do. Such a politicised situation is
never good for a currency, and the yen will weaken," said Peter
Kinsella, currency strategist at Commerzbank.
    With the European Central Bank looking increasingly unlikely
to cut interest rates in the next couple of months, the euro
 remained near Monday's seven-month high at $1.3175.
    Newly installed ECB board member Yves Mersch said he saw no
logic in cutting rates at the moment. 
    Data from the UK showed inflation stayed at its highest
level since May, confounding forecasts it would ease and
potentially giving the Bank of England less room to resume its
quantitative easing to support the struggling economy.
    However, Sweden cut its interest rates back to 1 percent,
Turkey cut rates for the first time in more than a year, while
India's central bank reiterated its guidance of further easing
in the first quarter of 2013.  
    In bond markets, trading remained subdued ahead of the
year-end. U.S and German government bonds futures slipped as
increasing signs of progress in the U.S. budget talks eased
demand for low-risk assets. 
    Concerns that new fiscal stimulus could seriously increase
the country's debt burden pushed the benchmark 10-year Japanese
government bond yield to a one-month high of
0.750 percent. 
    With the thin trade accentuating moves, Spanish debt
extended gains after its final bill sale of the year raised more
than the target amount. 
    Spanish 10-year bond yields fell 7.5 basis
points to 5.38 percent while the equivalent Italian debt
 fell 8 bps to 4.49 percent, back to where it was
before Prime Minister Mario Monti sparked a wave of selling
earlier this month by announcing he would resign early.

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