Global share gains halt as tensions rise in U.S. budget talks

Thu Dec 20, 2012 8:16am EST
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By Richard Hubbard

LONDON (Reuters) - World shares steadied near 17-month highs on Thursday, ending a week-long rally, while oil slipped as the latest setback in talks to avert a U.S. fiscal crisis kept buyers away.

The rising tension in the U.S. budget negotiations left futures prices for the S&P 500 and the Dow Jones pointing to a flat to lower open on Wall Street as well. .N

In the currency markets, the Bank of Japan's widely expected decision to ease policy for a third time in four months encouraged traders who had sold yen ahead of the move to take profits, sending the dollar and euro higher.

However, as trading winds down ahead of the holiday season all markets remain highly sensitive to progress in Washington - or the lack of it - in averting the automatic tax rises and spending cuts that could tip the economy into a recession.

"The 'fiscal cliff' is a reality and I believe that markets have got themselves into a hopeful state rather than a realistic state," said Gerard Lane, equity strategist at Shore Capital.

MSCI's world equity index .MIWD00000PUS has risen steadily over the past five weeks on optimism that a budget deal would clear the way for stronger growth in 2013. It was steady near 342 points, not far from levels last seen in July 2011.

In Europe, the FTSEurofirst 300 index .FTEU3 briefly touched a new, 19-month peak of 1,143.04 points, before slipping back to be little changed at 1,141.80.

London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were all about 0.1 percent above opening levels. .L.EU.N   Continued...

A cameraman films rises in share prices at the Tokyo Stock Exchange in Tokyo December 17, 2012. REUTERS/Yuriko Nakao