Setback in U.S. fiscal talks rattles shares, euro

NEW YORK Fri Dec 21, 2012 11:17pm IST

The Wall Street sign is seen near the New York Stock Exchange, November 19, 2012. REUTERS/Chip East

The Wall Street sign is seen near the New York Stock Exchange, November 19, 2012.

Credit: Reuters/Chip East

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NEW YORK (Reuters) - Global stock markets skidded on Friday while the euro and oil prices also slipped as a new setback in talks to avert a U.S. fiscal crisis and weak data out of Europe put investors on edge.

A proposal from U.S. Speaker of the House of Representatives John Boehner to avoid the "fiscal cliff" failed to get support from his Republican party on Thursday, casting fresh uncertainty over negotiations to avoid automatic tax hikes and spending cuts in January that could push the U.S. economy back into recession.

Wall Street extended losses after Boehner said congressional leaders and President Barack Obama must try to move on from his failed "plan B." He did not outline a clear path forward on negotiations.

"The markets are becoming extremely nervous as time is running out for any compromise solution" in U.S. fiscal negotiations, said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

"The greatest fear among investors is that the sudden shock to U.S. aggregate demand caused by the automatic sequestration of government spending and the simultaneous hike in taxes could have a chilling effect on global growth."

MSCI's all-country global equity index fell 1.03 percent to 339.06.

The Dow Jones industrial average was down 170.15 points, or 1.28 percent, at 13,141.57. The Standard & Poor's 500 Index was down 19.12 points, or 1.32 percent, at 1,424.57. The Nasdaq Composite Index was down 43.20 points, or 1.42 percent, at 3,007.19.

A poor reading on U.S. consumer confidence added to the gloom.

Thomson Reuters/University of Michigan Surveys of Consumers' final December consumer sentiment index fell to 72.9 from 74.5 in a preliminary report. Economists in a Reuters survey expected a final December reading of 74.7.

Weaker-than-expected data from key corners of Europe also weighed. German consumer morale dropped to its lowest in more than a year, Britain revised growth figures lower and Sweden slashed its economic forecasts.

The pan-European FTSEurofirst 300 index provisionally closed down 0.3 percent at 1,138.90 points, just off a 19-month high of 1,144.15 points set earlier this week.

The euro fell 0.62 percent to $1.3159.

The combined worries prompted widespread selling in most major stock markets and led investors to safe-haven assets.

The dollar and yen and U.S. and German Government bonds all rose as declines on equity markets in London, Paris and Frankfurt compounded tumbles in Asia.

German Bund futures rose 45 ticks to a settlement close of 144.77, extending Thursday's gains.

Bickering U.S. politicians have only 10 days left to resolve their differences. Most observers are still assuming the two sides will avert a fiscal disaster but tensions are likely to intensify over the normally quiet holiday period as the deadline looms.

"The markets are likely to interpret this as signaling even tougher negotiations in coming days," Mohamed El-Erian, chief executive of bond giant PIMCO, told Reuters.

Oil was also caught up in the U.S. disappointment. Brent crude oil fell $1.33 to $108.87 per barrel, while U.S. oil futures <CLc1) fell $1.67 to $88.46.

The benchmark 10-year U.S. Treasury note US10YT=RR rose 14/32 in price to yield 1.751 percent.

Asset performance in 2012: link.reuters.com/muc46s

U.S. GDP: link.reuters.com/guw34t

(Editing by Bernadette Baum and Alden Bentley)

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