* European shares flat, on course for 6th straight monthly
* Euro firms as euro zone borrowing costs ease
* India Q3 GDP slightly below forecast, China data eyed
By Richard Hubbard
LONDON, Nov 30 (Reuters) - Concerns about a stalemate in
crucial U.S. budget talks capped gains in world equity markets
on Friday, while the euro neared a one-month high on better
demand for European peripheral debt.
Markets are on edge over the lack of progress in talks to
close the budget gap in Washington, where a deal is needed by
year-end or automatic spending cuts and tax rises will be
triggered that would tip the U.S. economy into a recession.
The MSCI world equity index traded near its
highest level for a month on Friday at 332.6 points, virtually
unchanged despite earlier gains in Asian markets.
The so called 'fiscal cliff' is the last big stumbling block
to a what many forecast could be major rally in riskier assets
like equities next year as the easier monetary policies of
world's major central banks take hold.
"For the next 12 months I think the markets are going up,"
said Marino Valensise, chief investment officer at Baring Asset
"All the liquidity creation, quantitative easing, lending to
the banks of Europe, all this is conducive of a much better
market environment for riskier assets. So we could potentially
see quite a substantial rally," he said.
But before being comfortable in moving back into the market,
most investors want to see a deal in Washington where the latest
announcements have been less than hopeful.
On Thursday the leading Republican politician, House of
Representatives Speaker John Boehner, said there had been no
substantive progress in talks with the White House yet,
dampening hopes for a early deal less than 24 hours after he
said he was "optimistic" about reaching a pact.
The comments stalled gains in the FTSEurofirst 300 index
of top European shares which had jumped 1.1 percent on
Thursday to its highest close since July 2011. The index was
flat at 1122.40 points in early trade on Friday.
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were between 0.1 to 0.25 percent firmer
while U.S. stock futures pointed to a steady open when Wall
Street resumes trade.
Earlier MSCI's broadest index of Asia-Pacific shares outside
Japan rose 0.6 percent to its highest level
since March 1, and a monthly gain of 2.1 percent.
European shares are on course for their best month since
August and a sixth straight monthly gain as investors anticipate
a deal will eventually emerge in the U.S. budget and are
encouraged by this week's agreement to provide aid to Greece.
"I think there will be some kind of agreement over the next
week, or week and a half, maybe a little bit longer. Markets
will anticipate that, so the underlying tone of the market will
clearly be strong," said Philippe Gijsels, head of research at
BNP Paribas Fortis Global Markets.
EUROPEAN FEARS EASE
The signs that Europe's debt crisis has begun to stabilise
with the Greek deal sorted has also helped euro which was up 0.3
percent to just over $1.30 on Friday and at a seven-month
high against the yen of 107.55 yen.
Strong demand at an Italian bond auction this week which cut
Rome's borrowing costs to a two year low, and falls in Spanish
bond yields have encouraged investors back into European assets.
Spanish and Italian 10-year bond yields were stable in early
trade on Friday at 5.36 percent and 4.54 percent
respectively, and well below their peak in July
when's Spain's debt yielded more than six percent.
Amid the unclear prospects for the U.S. budget talks and the
better outlook for Europe's debt crisis, investors were also
eyeing data out of Asia that could offer signals for the likely
direction of global economic growth.
India's economy grew at a lower-than-expected annual 5.3
percent in the quarter ending in September, against analysts'
forecasts of 5.4 percent. Asia's third largest economy is still
growing faster than many other major economies, but it has
slowed from 6.5 percent in the 2011/12 fiscal year.
Japan, the world's third-largest economy, by contrast
reported that its industrial output unexpectedly rose 1.8
percent in October, the first increase in four months,
suggesting the negative impact of the global slowdown and a
diplomatic row with China may have run its course.
Japanese manufacturing activity contracted in November at
the fastest pace in 19 months however, according to a survey
indicating it was hurt by falling exports, weak domestic demand
and declining capital expenditure.
In South Korea, another big export-reliant economy,
industrial output grew for a second month in a row in October,
backing expectations for a recovery in the current quarter.
On Saturday, China will release the official manufacturing
PMI for November, which is likely to show factory activity
expanding at its fastest pace in seven months.
The data had little impact on world oil markets where the
fiscal crisis in the U.S. is in centre stage due to its
potential impact on demand from the world's biggest consumer.
Brent crude dropped 30 cents to $110.46, while U.S.
crude was down 20 cents at $87.87 a barrel.
"We are trading day to day based on the running drama over
the fiscal cliff, and the market doesn't look very optimistic at
the moment," said Carl Larry, a derivatives broker with Atlas
Commodities in Houston.
Gold edged up 0.3 percent to $1,729.55 an ounce but prices
were on track for their biggest weekly drop this month on all
the uncertainty over the U.S. budget talks.