GLOBAL MARKETS-U.S. budget deal gets cautious thumbs-up

Wed Dec 11, 2013 8:35am EST
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By Marc Jones

LONDON (Reuters) - Financial markets gave a cautious thumbs-up on Wednesday to a provisional budget deal that should end the threat of the U.S. government shutting down again in the coming months.

News that U.S. budget negotiators had reached a two-year agreement was not enough to overcome the year-end blues in Asia, but it was more warmly received in Europe, where shares inched higher and the dollar began to firm.

For many investors, the deal carried dual significance. It removed a key uncertainty hanging over markets, and it heightened expectations that the U.S. Federal Reserve will soon start scaling back its $85 billion-a-month stimulus program.

"It certainly does appear that a window of opportunity could be opening up for the Fed to act next week without a sharp market reaction, said CMC Markets strategist Michael Hewson. "The only question remaining is as to whether they will avail themselves of it."

The to-and-fro over when the Fed will begin to halt the flow of cheap dollars has dominated trading worldwide for months. A recent run of strong data and talk from policymakers have bolstered expectations the process will start soon.

Most Asian share markets had lurched lower overnight as investors booked profits on a range of once-crowded positions. But European stocks .FTEU3 were holding their own ahead of what was expected to be another quiet day on Wall Street..N

Euro zone countries edged closer to agreeing a long-awaited plan to close ailing banks and at least partly sharing the costs involved.

In the FX market, the dollar .DXY was broadly firmer in reaction to the budget deal in Washington, though it struggled against the yen as a drop in the Nikkei in Tokyo drove up the Japanese currency.   Continued...

Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett