US budget talks stalemate drags stocks; yen falls to 12-month low

Oil extends retreat; gold firm

NEW YORK, Dec 24, (Agencies): The yen tumbled on Monday in an otherwise quiet day as a continued deadlock in US budget talks left an undercurrent of uncertainty in markets ahead of the Christmas break.

Volume was light going into the holiday, with many traders already out on vacation. The US stock and bond markets close early, while a number of global markets, including those in Germany and Italy, were closed.

The major mover was the yen, which fell to 20-month lows after incoming premier Shinzo Abe renewed pressure over the weekend on the Bank of Japan to adopt a 2 percent inflation target. The dollar rose 0.7 percent against the yen.

The FTSEurofirst300 closed down 0.1 percent while the MSCI index of global stocks was slightly lower.

Global equities have been pressured by the political stalemate with respect to the US “fiscal cliff,” a combination of tax hikes and spending cuts scheduled to take effect next year. Investors fear that if no deal is reached, it could push the US economy into recession, severely hurting global growth.

Currency markets were largely quiet. Against the backdrop of the “fiscal cliff” uncertainty, the dollar eased 0.1 percent versus a basket of major currencies while the euro climbed 0.2 percent, back above $1.32.

Activity in other assets was also subdued, with spot gold edging off a four-month low and February crude futures down 0.2 percent. The benchmark 10-year US Treasury note was down 1/32, the yield at 1.7737 percent.

For the year, the S&P 500 has risen 13.5 percent. In the face of the budget uncertainty, many investors may opt to lock in gains for the year until there is resolution on that front.

The uncertainty over the US budget is threatening to sour what has been a strong second half of the year for equity markets. The FTSEurofirst 300 is up 20 percent since June while the Euro STOXX 50 has gained almost 30 percent. Both indexes are set to post their best annual performances since the post-Lehman crisis bounce of 2009.

Most European bond markets were already shut for Christmas. One of the few to be open was in Britain, where benchmark 10-year yields ticked higher. Still, investors are showing increasing appetite for European stocks. EPFR Global data reported that flows into equity funds have increased for the last 19 weeks.

US

US stocks slid during a shortened Christmas Eve session Monday amid pessimism about prospects for a “fiscal cliff” deal by the end of the year.

The Dow Jones Industrial Average was down 32.03 points (0.24 percent) at 13,158.81 at about 1545 GMT.

The broad-market S&P 500 shed 3.29 points (0.23 percent) to 1,426.86 while the tech-rich Nasdaq Composite lost 9.54 points (0.32 percent) at 3,011.47.

With markets on a holiday schedule and set to close at 1800 GMT instead of 2100 GMT, Briefing.com’s Dick Green predicted that volume would be light and potentially very volatile.

“The market remains obsessed with the fiscal cliff negotiations, or the lack thereof,” he wrote.

Stocks in focus included online deals company Groupon, which fell 2.7 percent.

On Friday, Groupon announced it had acquired CommerceInterface, a provider of web-based channel management technology used in e-commerce operations, to enhance its Groupon Goods marketplace.

Shares of BlackBerry maker Research In Motion were down 0.6 percent after plummeting Friday on investor fears that its new smartphone platform will thin the ranks paying for its service.

Microsoft meanwhile was down 1.4 percent amid a report about tepid sales of its new Windows 8 software.

On Friday, the Dow ended the session 0.91 percent lower, while the S&P 500 fell 0.94 percent and the Nasdaq dipped 0.96 percent.

Europe

European shares closed provisionally lower in a thin last trading session before the Christmas break with investors opting to trim positions in the absence of a resolution to US budget talks.

French, Dutch, Spanish and UK markets traded for only half the session while those in Germany, Italy, Austria, Greece, Denmark, Norway, Sweden and Switzerland were closed.

The FTSEurofirst 300 closed down 0.1 percent, at 1,138.14 points, still just a few points shy of an 19-month high of 1,144.15 hit last week.

The euro zone’s blue chip Euro STOXX 50 index and France’s CAC 40, which are trading around 16month highs, closed down 0.1 percent and 0.2 percent respectively. Spain’s IBEX finished up 0.1 percent and Britain’s FTSE 100 index was up 0.2 percent; they are both at around 9month highs.

After shunning European assets most of the year because of fears the crisis would lead to a break-up of the euro zone, investors have shown appetite for European stocks recently, according to EPFR Global data.

The majority of sectors ended in negative territory, but media shares managed a 0.3 percent rise boosted by M&A activity at London-listed broadcaster ITV.

UK

Britain’s top shares edged higher on Monday in a quiet half session before the Christmas break, with some strength seen from banks and commodity stocks, though uncertainty over US budget talks could limit near-term gains.

The FTSE 100 closed up 14.19 points, or 0.2 percent, at 5,954.18, within sight of a nine-month high of 5,977.82 hit on Wednesday. Trading volumes were very thin at just 21 percent of the 90-day daily average.

Banks, miners and oil stocks were behind nearly all of the FTSE 100’s points gain as investors positioned ahead of a two-day holiday.

On an otherwise slow day in terms of corporate news, merger and acquisition activity provided the market with some interest, in a trend which fund managers see picking up in the new year.

ITV, Britain’s largest free-to-air commercial broadcaster and home to period drama “Downton Abbey”, rose 0.6 percent after saying it will buy a 61.5 percent stake in US-based Gurney Productions, which makes reality programmes.

Westhouse Securities lifted its target price for ITV to 125 pence from 115 pence, and repeated its “buy” recommendation on the stock, to reflect positive momentum within the group.

Westhouse said it was not planning to change its forecasts in light of the deal but sees scope for upgrades in 2013.

Trading volume in ITV was very thin at just 17 percent of the 90-day daily average.

Among medium market capitalisation stocks, software group Micro Focus International edged up 0.3 percent after announcing its acquisition of assets from US-listed Progress Software for $15 million.

On the downside, BT Group shed 1.1 percent as the stock traded without entitlement to its latest dividend payout.

Asia

Asian markets rose in quiet preChristmas trade on Monday after big losses in the previous session as US lawmakers remain deadlocked in talks to avert the fiscal cliff.

With many markets open for just a half day Hong Kong closed 0.16 percent higher, adding 34.89 points to 22,541.18, Sydney added 0.25 percent, or 11.6 points to 4,635.2 and Seoul was flat, edging up 1.40 points to 1,981.82.

Shanghai was 0.27 percent higher, adding 5.74 points to 2,159.05.

Tokyo, Manila and Jakarta were closed for public holidays.

Regional gains came despite losses on Wall Street Friday as Capitol Hill broke up for Christmas without an agreement to avoid the huge tax hikes and spending cuts due to take effect in just over a week. In other markets: Singapore was up 0.16 percent, or 5.01 points, at 3,168.57.

Wilmar International gained 0.62 percent to Sg$3.25 while Keppel Corp. shed 0.28 percent to Sg$10.84.

Wellington, which was open for just half a day, closed flat, edging up 3.08 points to 4,057.82.

Taipei ended flat, edging down 4.62 points to 7,535.52.

Taiwan Semiconductor Manufacturing Co. was 0.52 percent lower at Tw$95.2 while leading smartphone maker HTC fell 1.07 percent at Tw$277.0.

Kuala Lumpur rose 0.64 percent, or 10.55 points, to close at 1,669.40.

CIMB gained 0.1 percent to 7.64 ringgit, Malayan Banking added 0.3 percent to 9.07 while Bumi Armada dipped 0.3 percent to 3.80.

Bangkok added 0.18 percent or 2.44 points to 1,375.82.

Oil company PTT lost 0.60 percent to 331 baht, while telecoms company Advanced Info Service gained 2.96 percent to 209 baht.

Mumbai edged up 0.07 percent, or 13.09 points, to 19,255.09.

Ailing carrier Kingfisher Airlines rose 5.0 percent to 15.97 rupees and Tata Motors rose 2.44 percent to 306.7 rupees.

Oil

Oil fell for a third day on Monday, threatening to erase this year’s meager gains as a stalemate over the US “fiscal cliff” budget crisis threatened to erode oil demand in the world’s top consumer.

By 1517 GMT, Brent crude had fallen 64 cents to $108.33 a barrel, taking its gains since the start of the year to less than $1. US oil slipped 24 cents to $88.42, down 4 percent on the year. US equity markets dipped marginally, while the dollar was little changed.

Even as the cliff looms, Brent crude has yet to test the $106-$107 region that has provided key technical support since September, with many traders doubting that lawmakers will risk the fragile US economy tipping again into recession.

Gold

Gold firmed in thin pre-holiday trade on Monday, but prices stayed near a four-month low as the US fiscal stalemate drove investors to the sidelines.

Despite the recent losses, gold remains set for a 12th straight year of gains on ultra-loose monetary policy by leading central banks, concerns over the financial stability of the euro zone, and diversification into bullion by central banks. Gold appeals to investors as a hedge against inflation.

Gold rose 0.43 percent to $1,663.24 an ounce at 1221 GMT, supported by a weaker dollar against a basket of currencies, after falling to its weakest since August at $1,635.09 on Thursday.

US gold for February rose 0.27 percent an ounce to $1,664.50.