Fresh debt deal delay prompts cautious trade

Fri Oct 21, 2011 6:41am EDT
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By Simon Jessop

LONDON (Reuters) - Stocks clawed back some ground on Friday after France and Germany said a comprehensive euro zone debt deal was on its way, if a little late, although a subdued euro and choppy German bonds showed not everyone was convinced.

Book-squaring before a weekend of euro zone crisis talks would likely govern moves across asset classes, traders said, while U.S. stock futures pointed to early gains on Wall Street and Treasuries were flat.

The long-running debt saga was meant to be resolved at a meeting of regional leaders on Sunday, but disagreement over the make-up of the sovereign rescue fund, the EFSF, stalled talks and sparked a selloff in riskier assets on Thursday.

A communique from French President Nicolas Sarkozy and German Chancellor Angela Merkel, following the European close, said the wide-ranging plan would now be announced no later than Wednesday.

"The enthusiasm, bordering on euphoria, that appeared to have swept up risk assets early in the week has now entirely evaporated and investors appear primed for a critical weekend almost expecting to be disappointed," Altium Securities said in a note.

The need to reach a debt deal, and quickly, was reflected in German business sentiment data showing a fall for the fourth month in a row, the latest sputtering in Europe's growth engine.

At 1006 GMT, the MSCI world equity index .MIWD00000PUS was up 0.4 percent while the FTSEurofirst 300 .FTEU3 index of leading European blue-chips was up 0.6 percent, in a bounce from its 1.4 percent selloff in the previous session.

Earnings have the potential to drive U.S. markets later in the session, with industrial bellwether General Electric (GE.N: Quote) due to report, along with Honeywell (HON.N: Quote) and Verizon (VZ.N: Quote).   Continued...

<p>A man looks at a stock quotation board outside a brokerage in Tokyo August 30, 2011. REUTERS/Toru Hanai</p>