Global shares, oil dip, but growth prospects limit falls
World stocks and oil prices eased on Monday ending a new year rally as some investors chose to book profits, but signs of a brightening global economic growth outlook limited the falls.
Wall Street looked to set to follow a similar path after the benchmark Standard & Poor's index surged to a five-year high on Friday when data showed employers kept up a steady pace of hiring in December and the vast services sector had expanded.
The numbers compounded the effect from the last-minute deal to avert a U.S. fiscal crisis reached at the start of the year and, along with surveys showing China's factory output rising, have boosted hopes for economic expansion worldwide in 2013.
"Overall, the market's positive trend is still intact," Lionel Jardin, head of institutional sales at Assya Capital in Paris, said of the trend in stocks. "The market is ripe for a pause, but with so much cash on the sidelines, there are a lot of buyers showing up each time we have a dip."
After touching a 22-month peak last week, the FTSE Eurofirst <.FTEU3> index of top European shares was down 0.2 percent at 1,164 points. Britain's FTSE 100 index was down 0.3 percent, Germany's DAX index fell 0.5 percent and France's CAC 40 eased 0.6 percent.
Asia-Pacific shares outside Japan <.MIAPJ0000PUS>, which reached their highest levels since August 2011 on Thursday, eased 0.1 percent, while Tokyo's Nikkei share average <.N225> ended down 0.8 percent, just below a 23-month high.
MSCI's broad world equity index <.MIWD00000PUS> was down 0.15 percent but was still not far from an 18-month peak scaled when investors returned to the market after the immediate U.S. fiscal crisis was averted by a political deal in Washington.
Financial shares outperformed the broader market after the Basel Committee of banking supervisors agreed to give banks four more years and greater flexibility than previously envisaged to build protective cash buffers. That means they can use more of their reserves to lend and help economies grow.
The STOXX 600 European banking index <.SX7P> was up by 1.5 percent at 172.58 points while the STOXX euro zone bank index <.SX7E> gained 2.1 percent.
"This will remove major uncertainties for the banks and the financing of the economy," said Arnaud Poutier, co-head of IG Markets France. "It's positive for banking stocks, but also for the overall market."
Brent crude oil futures slipped 50 cents to $110.81 per barrel after rising 0.6 percent last week.
ECB LOOMS
Investors were turning their attention to the first major policy meetings of the year at the European Central Bank and Bank of England on Thursday. No rate moves are expected but new euro zone economic forecasts are due.
Some analysts expect the ECB to point to the prospect of easier rates early this year after the meeting, contrasting with signals from U.S. Federal Reserve policymakers that it may pursue less accommodative policies in future.
The Bank of Japan is also expected to take major steps to stimulate that country's economy later this month as the new government aims to end deflation and recession.
The possibility of less monetary stimulus in 2013 from the Fed and more from the BOJ sent the dollar to a two-and-a-half year peak against the yen last week. However, profit taking saw it pull back on Monday by 0.3 percent to 87.87 yen.
The euro eased 0.3 percent to $1.3035 but was trading above a three-week low of $1.2998 hit on Friday. Analysts predicted it would stay around these levels until the outcome of ECB meeting is known.
"If the ECB doesn't cut rates we could see a minor uptick in the euro," said John Hardy, FX strategist at SAXO Bank. "The bigger risk going forward, however, is if they hint at the possibility of more easing, which will weigh on the euro."
DEBT STEADY
In the European bond markets, investors scooped up German government bonds after their steep falls last week as expectations changed over the Fed's next move.
Ten-year German cash yields were 2.2 basis points lower on the day at 1.522 percent. Other euro zone bond yields were steady to slightly higher as traders awaited debt auctions by Spain and Italy later in the week.
U.S. Treasury 10-year notes were mostly steady at 1.90 percent after reaching 1.975 percent on Friday in a sell-off fuelled by the expectations of less easy monetary policy this year.
Further moves are likely to be limited due to sales of three-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday.
Gold was off its lows of last week but in line with equities and oil had eased slightly as investors focused on the outlook for U.S. budget talks and the Federal Reserve's quantitative easing program.
"The current discussion in the gold market is when the Fed would end quantitative easing," said Peter Fertig, analyst with Quantitative Commodity Research.
Spot gold was down 0.1 percent at $1,655 an ounce, though above Friday's $1,625.79, its lowest price since August.
(Additional reporting by Blaise Robinson, Anooja Debnath and David Brough; Editing by David Stamp and Alastair Macdonald)