Fiscal cliff setback rattles shares, euro

Fri Dec 21, 2012 8:29am EST
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By Marc Jones

LONDON (Reuters) - Global stock markets weakened on Friday and both the euro and gold slipped, as a new setback in talks to avert a U.S. fiscal crisis and evidence of Europe's ongoing economic difficulties stoked investor nerves.

A proposal from Republican leader John Boehner to avoid the so-called fiscal cliff failed to get support from his party on Thursday, casting fresh uncertainty over talks to avoid across-the-board tax hikes and spending cuts that could push the U.S. economy into recession in 2013.

Anxiety was exacerbated by weaker-than-expected data from key corners of Europe, as German consumer morale dropped to its lowest level in more than a year, Britain revised down growth figures and Sweden slashed its economic forecasts.

The combined worries prompted widespread selling in most major stock markets and saw investors head for traditional safe-haven assets.

The dollar and yen and U.S. and German Government bonds all rose as falls on London .FTSE, Paris .FCHI and Frankfurt .GDAXI equity markets compounded tumbles in Asia to leave MSCI's global index .MIWD00000PUS down 0.4 percent.

Futures prices also pointed to sharp falls when trading resumes on Wall Street later, with the S&P 500 Dow Jones and Nasdaq 100 all seen losing around 1.4 percent.

Nevertheless, European and global share indices remain on course for their fifth straight week of gains. In the U.S., the S&P 500 is up about 1.8 percent so far this week and 14.8 percent on the year.

"Risk assets look vulnerable over the holiday trading period. The recent performance of key benchmarks has priced in a satisfactory outcome to the U.S. fiscal discussions, which is far from a done deal," said Peel Hunt strategist Ian Williams.   Continued...

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