US, European shares little changed despite rescue deal

NEW YORK: US and European shares were little changed and the euro eased on Friday after a strong rally in the prior session and a disappointing Italian debt auction that reflected shaky investor confidence in Europe despite a rescue deal.

US stocks spent most of the morning in negative territory, boosting safe-haven US Treasuries, while oil prices declined more than 1 percent on scepticism over the long-awaited debt deal and whether the region can contain the crippling crisis.

Italy's 10-year borrowing costs topped 6 percent for the first time since the launch of the euro after a debt auction Friday, underscoring the country's vulnerability at the centre of the debt crisis.

It was the first euro zone bond auction after policymakers struck a long-awaited agreement Thursday to slash Greece's debt burden and strengthen the European Financial Stability Facility (EFSF), the region's rescue fund.

Adding to concerns, the head of Europe's bailout fund played down hopes of a quick deal with China to throw its support behind efforts to resolve the crisis. But said he expected Beijing to continue to buy bonds issued by the rescue fund.

"I think we have a long way to go with this (European debt) mess. I still see huge risks," Stanley J.G. Crouch, who oversees $2 billion as the chief investment officer of Aegis Capital in New York.

US stocks barely budged after a powerful rally Thursday that propelled the S&P to close above its 200-day moving average for the first time since August.

The Dow Jones industrial average gained 18.17 points, or 0.15 percent, to 12,226.72. The Standard & Poor's 500 Index added 0.07 points, or 0.01 percent, to 1,284.66. The Nasdaq Composite Index dropped 1.40 points, or 0.05 percent, to 2,737.23.

The FTSEurofirst 300 index of leading European shares shed 0.2 percent to 1,018.35 points.

MSCI's all-country world stock index was last up 0.4 percent at 319.20, though it was off its highest level in nearly three months hit earlier in the day. Emerging market shares rallied 1.7 percent.

Markets paid little heed to US government data showing consumer income grew by a sluggish 0.1 percent in September, and a separate report indicating wages and salaries expanded 0.3 percent in the third quarter, the smallest rise in a year.

Investors' focus was shifting to a meeting of the Group of 20 nations next week in Cannes, France, watching for any coordinated efforts or pledges to help stabilize world financial markets, which have been battered this year by Europe's debt crisis and a slowing world economy.

The euro slipped 0.2 percent to $1.4167, taking a breather from a rally Thursday, when it hit a seven-week high of $1.4247.

"Although we're getting somewhere with EFSF, the Italian auction shows the market is sending signals that the crisis hasn't been solved by a long shot," said Stephen Gallo, head of market analysis at Schneider FX.

Analysts said much of this month's 5.8 percent rally in the euro against the dollar was driven by a squeeze of short positions, with speculators reluctant to build bets against the euro ahead of the G20 and a US Federal Reserve meeting next week.

Any hints the Fed is considering another round of monetary easing to boost the US economy or of a commitment from G20 players to support the euro zone bailout fund would likely push the euro higher.

The dollar steadied, after falling 1.8 percent against a basket of currencies the previous day in its biggest daily falls in more than two years.

The US dollar index last traded up 0.2 percent at 75.015. Against the yen, the dollar slipped 0.3 percent to 75.72, keeping alive the risk of intervention by Japanese authorities to curb the yen's rally. Brent crude shed $1.56 to $110.51. US crude dropped 63 cents to $93.34.

Spot gold retreated to $1,740.19 an ounce from a one-month high of $1,751.99. The benchmark 10-year US Treasury note was up 18/32, with the yield at 2.32 percent.

Copyright Reuters, 2011