World shares struggle on Europe, US fiscal cliff worries

London:  World share markets struggled to make gains on Wednesday as investors fretted about rising tensions in Europe over its debt crisis and the fast-approaching fiscal cliff in the United States.

A wave of strikes across southern Europe to protest against spending cuts and tax hikes kept the focus firmly on the region's debt crisis as policymakers wrangle over a deal to release desperately needed funds for Greece.

"The uncertainty surrounding Greece and the opposition against further austerity measures is going to undermine the market," said Ioan Smith, strategist at Knight Capital.

The MSCI world equity index was little changed around 321.90 points as losses across European markets were offset by a 0.4 per cent rise in Asian markets outside Japan as they recovered from seven-week lows hit on Tuesday.

The FTSEurofirst 300 index of top European shares was down around 0.4 per cent at 1,094.95 points by 1030 GMT, giving up Tuesday's 0.4 per cent rise, its first daily gain in four sessions.

"The failure to sustain any momentum to the upside suggests there is a buyers' strike and they are staying on the sidelines, waiting for a resolution either in Greece or in the U.S.," Knight Capital's Smith said.

London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 were between 0.2 and 0.5 per cent lower.

Although Greece is now expected to secure short-term funding to meet its debt obligations, international lenders continue to clash over how Athens can cuts its borrowings to more sustainable levels, and a deal to release aid payments remains some way off.

The uncertainty over Europe failed to deter investors in the latest auction of debt by Italy, which sold 3.5 billion euros of new government bonds. At the sale the three-year debt yield fell to its lowest level since October 2010.

"Demand was solid, and the yield on the three-year note resumed its downward trend and is at pre-crisis levels," Nicholas Spiro, managing director at Spiro Sovereign Strategy.

However, safe-haven demand also enabled Germany to auction 4.3 billion euros of new two-year bonds at a yield of minus 0.02 per cent.


The euro meanwhile gained against both the dollar and the yen after a political crisis in Japan triggered a dissolution of Parliament that looks likely to end the term of the current Democratic Party of Japan-led government.

Japan's Prime Minister Yoshihiko Noda will hope to gain support from other parties for political reforms in fresh elections set for December 16, though the most likely victor would be the main opposition Liberal Democratic Party (LDP).

That outcome is regarded as negative for the yen, as an LDP-led government could put pressure on the Bank of Japan to ease monetary policy.

The euro was 0.3 per cent higher against the dollar at $12,745 and climbed 1 per cent against the Japanese unit to 101.87 yen.

The dollar rose 0.7 per cent to 79.90 yen but eased against most other major currencies on growing signs that the Federal Reserve is likely to adopt an ultra-loose monetary stance in coming months.

The minutes from the latest Federal Open Market Committee meeting will be released later on Wednesday and are likely to confirm an easy policy bias for some time to come.

The greenback was still being supported by concerns that Washington will struggle to find compromises needed to avoid a series of mandated tax hikes and spending cuts due to take effect next year that could send the world's largest economy back into recession.

U.S. Treasury yields edged higher in Europe on Wednesday but were not expected to stray far from their lowest levels since September on concerns over the outcome of negotiations.

"The negotiations will be tough and could trigger a downgrade of the U.S. credit rating," said Efigest Asset Management portfolio manager Regis Yancovici.

Ten-year Treasury yields were 3.5 basis points higher at 1.63 per cent, having fallen as low as 1.57 per cent on Tuesday.


Commodity markets were subdued, with traders watching developments in Europe and the U.S. but also wary about the ramifications of the political transition in China due to be announced on Thursday.

On Wednesday, the 2,270 carefully vetted party delegates cast their votes in Beijing's cavernous Great Hall of the People for the new central committee, which in turn on Thursday will appoint the Politburo Standing Committee that will ultimately rule China.

The new government's attitude to supporting growth, which has been slowing all year, will be closely watched as China is the world's top consumer of many commodities.

Three-month copper on the London Metal Exchange was steady at $7,671.25 a tonne, while gold rose $3.25 to $1,728.14 an ounce but was still below a 3-week peak of around $1,738 struck on Friday.
In oil markets Brent crude had slipped below $108 a barrel, declining for a third day, after the International Energy Agency (IEA) cut its demand outlook for the fourth quarter and 2013.

U.S. oil gained 2 cents to $85.40, snapping two days of losses.

Copyright @ Thomson Reuters 2012

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