* European shares head for best week in 8 months
* Euro dips after S&P cuts European Union debt rating
* Chinese stocks hurt by cash crunch worries
* Gold heads for biggest annual loss in 32 years
By Blaise Robinson
LONDON, Dec 20 (Reuters) - European shares inched up on
Friday with riskier assets still in demand following a broadly
neutral shift in U.S. monetary policy, and the euro dipped after
rating agency S&P downgraded the European Union from triple-A.
The FTSEurofirst 300 index of top European shares
was up 0.2 percent, while U.S. stock index futures
pointed to a higher open on Wall Street.
That kept the European equity benchmark set for a weekly
gain of about 3.3 percent, its biggest in eight months, as
sentiment stayed upbeat after the U.S. Federal Reserve
sugar-coated Wednesday's modest cut in stimulus with a signal
that interest rates were likely to stay low for longer.
"Despite the cut, the Fed is still injecting $75 billion a
month in liquidity, which will continue to support equities
going forward," said David Thebault, head of quantitative sales
trading at Global Equities in Paris.
"2013 has been the year during which the global financial
crisis really ended, and with pro-active central banks, stocks
should extend their rally next year now that systemic risks are
gone and global growth picks up."
The euro was down about 0.1 percent against the dollar at
$1.3630 after hitting a session low of $1.3625, its
lowest since Dec. 5, following a downgrade by Standard & Poor's
of the European Union's credit rating. It cut the bloc to AA+
from AAA, citing rising tensions in budget negotiations.
Euro zone government bonds also dipped, with German Bund
futures 16 ticks lower at 139.64 points. German 10-year
yields inched up to 1.89 percent.
In Asia, the yen stayed under pressure against a range of
currencies including the euro after the Bank of Japan held
monetary policy as expected, maintaining its view that the
economy is recovering moderately.
Also in Asia, Chinese stocks continued to lag other equity
markets, with the Shanghai Composite Index ending down 2
percent to mark its worst week since May 2011 on concerns over a
renewed cash crunch. Shares of Hong Kong-listed Chinese
companies sagged 1.4 percent.
China's benchmark money market rate climbed to a six-month
high despite attempts by the central bank to calm nerves.
"The tension in the money markets in China is something we
have seen multiple times this year ... It is very difficult to
get a grip on how ... interconnected this is," Saxo Bank
strategist Peter Garnry said.
"We know the shadow banking industry is big, we know that
credit has been growing tremendously over the last couple of
years, and we know parts of the banking system are not that well
Gold hit a six-month low, on course for its largest annual
loss in 32 years, as the Fed's first step away from ultra-loose
monetary policy further undermined the case for holding bullion.
"If you look at the global economy and the outlook for
monetary policy ... we are in an environment where we are going
to need a much bigger problem in the world than we foresee for
gold to recapture any of its lustre," Baring Asset Management
investment manager Andrew Cole said.
Brent crude held above $110 a barrel on Friday,
heading for a weekly gain, boosted by a positive outlook for
fuel demand in the United States, the world's largest oil
consumer, and reduced Libyan supply.