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GLOBAL MARKETS-World shares, euro dip ahead of Greek decision

Source : REUTERS
Last Updated: Mon, Nov 26, 2012 19:10 hrs

* European shares 0.6 pct lower after five days of gains

* Market focus on outcome of Greek aid negotiations

* Euro edges down vs dollar, off from 7-mth high vs yen

* U.S. stocks seen lower as U.S. fiscal talks set to resume

By Richard Hubbard

LONDON, Nov 26 (Reuters) - World shares and the euro edged lower on Monday as investors nervously awaited the outcome of the latest round of talks to release emergency aid to keep Greece financially afloat.

A lack of progress in talks among U.S. lawmakers over how to avoid the harsh tax increases and government spending cuts due to come into effect Jan. 1, was also weighing on markets, with Wall Street set for a lower open when trading resumes.

Stocks, commodities and the single currency were all either steady to slightly weaker following strong gains seen over the past week as investors priced in the likelihood of a Greek deal.

The MSCI world equity index, which gained nearly four percent over the week to Nov. 23 for its biggest weekly gain since April, was down 0.1 percent to stand at 329.50 points.

"Last week was very good for the markets and it seems that investors are taking a breather ahead of the euro zone meeting," said Koen De Leus, senior economist at KBC in Brussels.

Euro zone finance ministers and the International Monetary Fund began their third meeting in as many weeks on Monday to try to seal a bailout deal for Greece, but must still agree how to cut the country's debt pile to a more sustainable level.

Greece, where the euro zone's debt crisis erupted in late 2009, is the currency area's most heavily indebted country, despite a big "haircut" this year on privately-held bonds and needs the funds to meet upcoming debt repayments.

"There is some caution, but it is also clear that Greece's lenders will not allow the country to fail. A Greek default is not an option," De Leus said.

French Finance Minister Pierre Moscovici, speaking on Sunday after a weekend teleconference of Greece's international lenders, said the gap had closed significantly, and he believed a deal could be reached quickly.

The euro was down 0.4 percent at 106.60 yen, having hit 107.135 yen in Asian trade, the single currency's strongest level since late April.

Against the dollar, the euro was down 0.1 percent at $1.2965 , having hit $1.2991 on Friday, its highest since late October.

Big gains for Catalan separatists in regional Spanish elections also hurt the euro, even though the result fell short of the convincing win needed to mount a push for a referendum on independence for the region.

There was a bigger impact from the Spanish vote in the fixed income market where safe-haven German debt prices recovered some ground lost last week on concern at the outcome and Spanish bonds prices fell.

Benchmark 10-year German bonds eased two basis points 1.42 percent, while Spanish 10-year bond yields edged 3 basis points higher to 5.67 percent.

Major European share indexes were down around 0.5 percent across the board after some regional indexes had seen their best weekly performance since December over the last week.

The FTSE Eurofirst 300 index of top European shares surged over four percent last week but was about 0.7 percent lower on Monday at 1,103 points.

London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were all between 0.4 to 0.9 percent lower.

Earlier, optimism around the euro area's ability to achieve a deal on Greece lifted the MSCI's broadest index of Asia-Pacific shares outside Japan up 0.2 percent to a two-week high.

OIL CAUTIOUS

Oil prices were also in retreat after their recent gains, but worries over supply from the Middle East as violence flared in Egypt and hopes an aid deal for Greece would brighten the outlook for demand limited the move.

Brent crude fell 33 cents to just over $111 a barrel although it is up around 2 percent so far this month.

U.S. crude oil futures fell 0.6 percent to $87.75.

Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, said the concerns over what was happening in Cairo was due to Egypt's role as a pivotal power in the Middle East and North Africa.

"If it is getting messy there, it could spill over into other countries - oil producers in North Africa and even into the Gulf and even countries like Saudi Arabia," Fritsch said.

Gold shed 0.15 percent to $1,750.40 an ounce after rising to $1,754.10 on Friday, its strongest since Oct. 12.

Gold has gained around 11 percent this year, mainly due to expectations that U.S. monetary policy will remain loose.



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