U.S. budget talk deadlock slows share gains

Fri Nov 30, 2012 8:04am EST
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By Richard Hubbard

LONDON (Reuters) - Concern about the stalemate in crucial U.S. budget talks slowed gains in world equity markets on Friday, while the euro neared a one-month high on better demand for European peripheral debt.

Markets are on edge over the lack of progress in talks to close the budget gap in Washington, where a deal is needed by year-end or automatic spending cuts and tax rises will be triggered that would tip the U.S. economy into a recession.

The MSCI world equity index .MIWD00000PUS edged up 0.1 percent to near its highest level for November at 332.7 points, having added almost 1 percent on Thursday when a deal appeared close. U.S. stock index futures pointed to slightly better opening on Wall Street. .N

The so called 'fiscal cliff' is the last big stumbling block to what many forecast could be major rally in riskier assets such as equities next year as the easier monetary policies of world's major central banks take hold.

"For the next 12 months I think the markets are going up," said Marino Valensise, chief investment officer at Baring Asset Management Ltd.

"All the liquidity creation, quantitative easing, lending to the banks of Europe, all this is conducive of a much better market environment for riskier assets. So we could potentially see quite a substantial rally."

But before being comfortable in moving back into the market, most investors want to see a deal in Washington where the latest announcements have been less than hopeful.

On Thursday the leading Republican politician, House of Representatives Speaker John Boehner, said there had been no substantive progress in talks with the White House, dampening hopes for an early deal less than 24 hours after he said he was "optimistic" about reaching a pact.   Continued...

A visitor walks near the logo of the Tokyo Stock Exchange in Tokyo November 5, 2012. REUTERS/Issei Kato