Euro up but ECB uncertainty, US deficit debate weigh
Investors will remain wary of placing bets in favor of the euro, with issues on both sides of the Atlantic likely to contain risk appetite.
While the euro rose against the dollar on Friday on the possibility the European Central Bank and the International Monetary Fund will bail out bigger euro zone economies and borrowing costs for Italy and Spain eased, sentiment remained bearish.
The common currency fell for three straight weeks as fears persisted that the debt crisis could engulf major euro zone states such as France and trigger a break-up of the 17-nation bloc.
"While we had some consolidation today, the overall dynamics for the euro remain weak and we expect it to end the year at around $1.29," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
"There is not much clarity on what is needed to support the euro zone as a whole," he said. "The ECB remains reluctant to increase purchases of periphery bonds and the EFSF (European Financial Stability Facility) has not yet been fully implemented."
Yields on Italian and Spanish bonds eased after the ECB stepped in to stabilize the market, but fears remain that both countries' borrowing costs are at unsustainable levels.
Euro zone officials said there have been discussions that the ECB could lend to the IMF to provide the fund with enough money to bail out even the biggest euro zone countries.
Market eyes Europe, DC after worst week in 8
The worst week for U.S. stocks in two months ended with traders mostly sitting it out on Friday as they waited for politicians in Europe and the United States to tackle festering debt problems.
The Dow and S&P 500 were little changed and the Nasdaq composite index fell.
Friday's directionless market showed more exhaustion than relief as Europe remained investors' primary worry. Stocks found support after Italian and Spanish bond yields fell thanks to buying by the European Central Bank.
In the United States, doubts grew whether a bipartisan committee could come up with budget cuts and tax increases that Congress can agree on next week.
A major question has been whether the European Central Bank will find a way to act as a lender of last resort in the manner of the U.S. Federal Reserve. Speculation has grown the ECB could lend money to the International Monetary Fund to bail out some euro zone members.
The Dow Jones industrial average <.DJI> gained 25.43 points, or 0.22 percent, to 11,796.16. The S&P 500 <.SPX> dipped 0.48 point, or 0.04 percent, to 1,215.65. The Nasdaq Composite <.IXIC> lost 15.49 points, or 0.60 percent, to 2,572.50.
Gold posts biggest weekly loss since Sept
Gold tracked equity markets to end slightly higher on Friday, even though persistent euro zone debt worries and margin liquidation from other markets sent bullion to its largest weekly loss since September.
Bullion regained its footing after Thursday's sell-off, climbing above key chart support at its 50-day moving average, a level it breached during the previous session. Gold lost 3.5 percent this week, its worst performance in nearly two months.
This trend was reinforced this week as the rift between Germany and other major European powers widened over whether the European Central Bank should start printing money to deal with the region's two-year-old debt crisis. German Chancellor Angela Merkel resisted calls for the ECB to backstop other governments.
U.S. December gold futures <GCZ1> settled up $4.90 at $1,725.10 an ounce.
Crude ends down on profit-taking as Dec exits
U.S. crude futures fell for a second straight day on Friday as an early rally due to a weaker dollar faded, giving way to profit-taking as traders liquidated December positions before the contract expired at the close.
For the week, U.S. crude futures finished with their first weekly loss in seven as the market tested key technical trendlines following six weeks of gains.
In early trading, prices rose back to above $100 as the euro gained on talk that the European Central Bank and the International Monetary Fund would bail out bigger European economies. [USD/]
But skepticism on how that might work soon set in and liquidations in the December crude contract accelerated, shifting the market's direction lower.
December crude posted the week's high of $103.37 on Thursday, highest intraday since May 31, and dropped to the week's low at $96.70 on Friday.
Continuing worries about how the euro zone might resolve its debt crisis remain a deterrent to any swift advance back to $100 and beyond for U.S. crude, analysts said.
On the New York Mercantile Exchange, December crude <CLZ1> expired and settled at $97.41 a barrel, falling $1.41, or 1.43 percent.
Nikkei set to edge lower amid Europe, US worries
The Nikkei average is likely to edge down on Monday, as newly installed European leaders grapple with parlous finances and a U.S. bipartisan committee inches closer to a deficit reduction deadline.
Nishi said the yen's strength against the euro and the dollar was also pressuring the market.
The benchmark Nikkei <.N225> is expected to trade in a range of 8,350 to 8,450 on Monday, strategists said.
New leaders in Greece, Italy, and now Spain are rushing to enact austerity measures amid bond yields close or at 7 percent ahead of a meeting with euro zone leaders later this month to finalise the European Financial Stability Facility (EFSF).
In the U.S., the bipartisan deficit-reduction committee could come up empty handed at midnight on Wednesday, congressional aides said, and fail to meet their deadline to find $1.2 trillion in budget cuts over the next decade.
Nikkei futures in Chicago ended at 8,390, down 20 points from their Osaka close of 8,410. <JNIc1>.
On Friday, the benchmark Nikkei fell 1.2 percent to 8,374.91, its lowest level in more than a month. The broader Topix index <.TOPX> shed 1.1 percent to 719.98.
The Dow fell 2.9 percent, the S&P dropped 3.8 percent and the Nasdaq lost 4 percent last week.
Seoul shares seen recovering, eyes on ECB
Seoul shares are likely to open slightly higher on Monday as better-than-expected U.S. economic data and easing funding pressure on Italy and Spain from ECB bond purchases bring a measure of calm.
Italian and Spanish bond yields fell on Friday as the European Central Bank led purchases in the secondary market to halt spiraling debt costs, helping Italian 10-year government bond yields <IT10YT=TWEB> fall 9-basis points to 6.825 percent.
A yield of 7 percent is the threshold that most investors consider to be unsustainable and the level that required bailouts by countries such as Greece, Portugal, and Ireland.
The Korea Composite Stock Price Index (KOSPI) <.KS11> ended down 2 percent at 1,839.17 points on Friday.
HK stocks could open lower, losses seen capped on charts
Hong Kong shares could open lower on Monday, with turnover likely crimped and top beta names remaining in focus, starting a week of trading likely to be choppy and driven by headlines out of Europe and the United States.
Benchmark indices are poised to be supported by chart technicals with fears lingering over the debt crisis in Europe. Any likely failure of the U.S. congressional deficit-reduction committee to bridge differences over taxes and spending would further weigh on sentiment.
The Hang Seng Index <.HSI> closed down 1.7 percent on Friday to 18,491.2 points, after testing the 18,435 level, its low on Oct. 24, earlier that day. The index closed 3.4 percent lower on the week, its third-straight weekly loss.
A gap that opened up on the charts between the high on Oct. 23 at about 18,082.4 and the low on Oct. 24 suggests there could be a steep fall should the 18,435 support level be broken.
Elsewhere in Asia, Japan's benchmark Nikkei was trading down 0.3 percent at 8351,6 points, while the Korea Composite Stock Price Index (KOSPI) <.KS11> was trading down 1.2 percent at 1,817.2 points at 0104 GMT.
Source : Reuters
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