GLOBAL MARKETS-Oil and euro drop after ECB comments, shares rise

Herbert Lash
Reuters Middle East

* ECB predicts euro-zone weakness, hitting euro, oil prices

* U.S. stocks rise as investors keep eye on 'fiscal cliff'


* Europe's FTSEurofirst 300 index up 0.7 pct - an 18-month


NEW YORK, Dec 6 (Reuters) - Oil prices slipped and the euro

fell in its sharpest drop in a month on Thursday after the

European Central Bank said growth in the euro zone is likely to

shrink next year, sparking speculation of an interest-rate cut.

But global shares rose, with the three major U.S. stock

indexes getting a modest lift as investors watched for signs of

progress in the "fiscal cliff" talks and Apple's stock rebounded

a day after its worst one-day percentage loss in nearly four

years. The FTSEurofirst-300 Index closed at an 18-month high.

German bonds rallied and Brent crude oil fell below $107 a

barrel after ECB President Mario Draghi said policy-makers held

a wide discussion on interest rates, leaving the door open to a

possible cut in borrowing costs next year.

The ECB left rates on hold, but the bank's new staff put

projections on gross domestic product in a range of a declining

0.9 percent to growing just 0.3 percent next year, suggesting

contraction is far more likely than not.

"The underlying reason for euro weakness is still there, and

the ECB's warnings of continued weakness over the next year

could be the catalyst for a continued euro drop," said Neal

Gilbert, market strategist at GFT in Grand Rapids, Michigan.

The euro fell 0.84 percent to $1.2956, while the U.S.

dollar index rose 0.65 percent to 80.295.

Brent crude was down $1.97 at $106.84.

The March 2013 Bund future, which became the

front-month contract during the session, rallied more than half

a point to a session high of 145.74. Yields on the 10-year

German bond fell to 1.29 percent, their lowest

since late August.

U.S. stocks edged higher in choppy trading, but traders kept

an eye on Washington and negotiations to avert some $600 billion

of tax hikes and spending cuts scheduled to start in January if

Congress fails to reach an agreement on deficit reduction.

President Barack Obama takes his "fiscal-cliff" campaign to

the home of a family in northern Virginia to illustrate the

impact of letting taxes on the middle class rise as signs emerge

that Republicans are contemplating a change in strategy in their

battle with Democrats over deficit reduction.

The office of U.S. Senator Jim DeMint, a conservative

Republican from South Carolina and a favorite of the Tea Party

wing of the party, said he will resign in January to run the

Heritage Foundation, a conservative think tank.

Upbeat guidance from Broadcom and Apple's turnaround helped

lift technology stocks. Apple erased initial losses of as much

as 3.7 percent at the open, which briefly pulled its market

capitalization below $500 billion, to climb 1.66 percent to


"It's really being held hostage to (the fiscal cliff

negotiations) and the stock action of Apple," said Bruce Zaro,

chief technical strategist at Delta Global Asset Management in


The number of Americans filing new claims for unemployment

benefits last week fell to the pre-Superstorm Sandy range,

suggesting a return to modest job growth after a storm-related

setback. It was the third straight weekly


The Dow Jones industrial average was up 15.30 points,

or 0.12 percent, at 13,049.79. The Standard & Poor's 500 Index

was up 2.91 points, or 0.21 percent, at 1,412.19. The

Nasdaq Composite Index was up 15.88 points, or 0.53

percent, at 2,989.58.

MSCI's all-country world equity index rose 0.2 percent to

333.56, while European stocks hit fresh 2012 highs and some

traders eyed more rallies after equity indexes broke key

resistance levels.

The FTSEurofirst 300 index of top European shares

hit an 18-month closing high at 1,131.85, up 0.69 percent for

the day, with bullish technicals, an improving global outlook

and attractive valuations raising equities' appeal.

"We still have some risks, but the magnitude of the risks

has diminished and they are being handled in a better way," said

Ben Hauzenberger, a fund manager at Zurich-based Swisscanto

Asset Management.

Benchmark U.S. Treasury yields dipped to near their lowest

in three weeks, supported by expectations that the Federal

Reserve will announce a new bond-purchase program when it meets

next week.

The benchmark 10-year U.S. Treasury note rose

6/32 in price to yield 1.57 percent.

Crude oil also faced pressure after a U.S. inventory report

showed big builds in oil products, with gasoline stocks up by

the highest margin since September 2001, surging 7.86 million

barrels to 212.12 million barrels in the week to Nov. 30.

U.S. crude futures fell $1.86 to $86.02 a barrel.

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