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LONDON (Reuters) - The euro dipped on Friday and shares traded flat as an Italian bond sale failed to meet high expectations and Greece's debt swap deal hung in the balance, but markets welcomed trade figures pointing to resilience in the euro zone economy.
Underpinned by a flood of three-year loans to banks from the European Central Bank, Italy's three-year debt costs fell below 5 percent for the first time since September, spurring hopes it would be able to make it through a looming refinancing hump.
But the tender raised less than half the 10 billion euros secured the previous day at far lower yields by Spain, the other major euro zone economy on the front line of the debt crisis.
The debt turmoil weighed on trading and corporate deal-making at U.S. investment bank JPMorgan (JPM.N), which kicked off the financial reporting season across the Atlantic with a year-on-year drop in quarterly income.
"JPMorgan results are certainly closely eyed as they set the tone for the financial sector earnings," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
"This time, they didn't have any market surprises so investors will be focused more on other things today like the move in the euro."
On Wall Street, stock futures pointed to a flat opening and in Europe shares eased back to trade in narrow ranges after sharp gains ahead of the Italian debt sale.
The FTSEurofirst 300 .FTEU3 index was up 0.5 percent at 1,024.00 by 1215 GMT, off Thursday's five-month high of 1,031.08. The MSCI global index .MIWD00000PUS rose 0.3 percent.
The debt auction quashed some earlier signs of risk appetite and the euro dipped back to $1.2780, within touching distance of a 16-month low near $1.2662.
The dollar rose to 80.951 versus a currency basket .DXY, not far from a 16-month high of 81.493 hit on Wednesday after a run of robust U.S. data.
Investors also headed back to the safe havens of core government debt and U.S. Treasury futures rose to a session high in Europe while Bund futures hit a new record.
"After the stellar bill auction in Italy and the very good Spanish auctions yesterday, there will be some disappointment in the market," Marc Ostwald, a strategist at Monument Securities, said.
The European Central Bank struck a cautiously optimistic note on the euro zone's outlook on Thursday and left the door open to further interest rate cuts.
Hopes the region's economy might be more resilient to the crisis than feared were supported by data showing a strong trade surplus rather than the expected deficit in November. That suggested U.S. and Asian demand and a weak euro may be helping exporters weather the turmoil closer to home.
"The pace of (euro zone) economic contraction ...may be easing a bit, but it's premature to say that the recession is ending" Nick Kounis, head of macroeconomic research at ABN AMRO.
Italian 10-year bond yields have fallen sharply this week but remain within striking distance of the 7 percent rate that has pushed other euro zone governments over the edge. They pared early gains on Friday to trade 7 basis points lower at 6.596 percent, off session lows of 6.48 percent.
"It wouldn't surprise me if peripherals continue to do well, especially with another three-year (ECB funding injection) coming up in February," Alan McQuaid, chief economist at Bloxham Stockbrokers, said
"But the critical point is the end of the month to see what the (euro zone) policymakers come up with ...Sentiment is still fragile. It has been encouraged by the actions of the ECB, but politicians have to deliver as well."
Talks remained delicately poised on Greece's debt swap deal, seen as vital to efforts to stave off a disorderly default of the euro zone's weakest link.
Private sector bondholders said time was running out for a deal that reports said Greece might try to force them into accepting, though French bank Societe Generale said agreement was close on a writedown of at least half the value of the debt.
Whatever the outcome, "an agreement on the Greek debt swap is unlikely to be enough to bring Greece back to a sustainable path," said Manuel Oliveri, currency strategist at UBS.
British factory gate inflation fell more than expected in December, boosting expectations that the Bank of England will soon inject more stimulus into the struggling economy. Sterling fell to a two-week low against the euro following the data.
Brent crude fell 0.25 percent to just under $111, with hopes a proposed European Union embargo on imports of Iranian crude would only be phased in gradually outweighing worries over supply disruption from Nigeria.
Asset performance in 2012: link.reuters.com/nyw85s
ECB bank borrowing, deposits: link.reuters.com/nyd85s
ECB in graphics: link.reuters.com/neg32s
Europe earnings expectations: link.reuters.com/duc95s
Additional reporting by Richard Hubbard, Neal Armstrong and Marius Zaharia in London and Robin Emmott in Brussels; Editing by Toby Chopra