GLOBAL MARKETS-U.S. shares sag; euro off two-month lows

Mon Nov 12, 2012 4:27pm GMT

* U.S. stocks sag on concern about impending fiscal constraints

* Volume light on Veterans Day; bond market closed

* Euro zone finance ministers meet to discuss Greece

By Ellen Freilich

NEW YORK, Nov 12 (Reuters) - U.S. stocks edged down in light holiday trade and world shares stabilized o n M onday after three straight sessions of losses as concerns about a possible U.S. fiscal crisis and delays to an installment of Greek aid offset firmer Chinese economic data.

Data showing Chinese exports picked up sharply in October, signaling the giant economy was strengthening, encouraged investors. However, this optimism was undercut by concerns about the euro zone and possible fiscal constraints in the United States, as well as news Japan's economy shrank 0.9 percent in third quarter and was heading into a mild recession.

Persistent concerns about possible higher U.S. taxes and spending cuts in the early part of 2013 weighed.

The S&P 500 slid 2.4 percent last week, its worst week since June, closing below its 200-day moving average for the first time in five months. But the benchmark is still up 10 percent for 2012.

Trade in the United States was light, with government offices and the U.S. bond market closed for the U.S. Veterans Day holiday.

Last week's weakness was partly propelled by concerns about whether there will be a timely solution to avoid a combination of government spending cuts and tax increases set to take effect early next year unless Congress reaches a compromise. Although many analysts think a deal will be reached, economists fear tax increases and spending cuts could tip the economy back into recession if it fails.

"Right now, all eyes are on Washington, and we're just waiting," said Matthew Keator, a partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "We're hopeful something gets done, but we've been disappointed before. We need to see something done if we're going to remain up for the year."

The Dow Jones industrial average was down 22.77 points, or 0.18 percent, at 12,792.62. The Standard & Poor's 500 Index was down 1.70 points, or 0.12 percent, at 1,378.15. The Nasdaq Composite Index was down 5.75 points, or 0.20 percent, at 2,899.12.

Overseas, a weekend report showed China's export growth climbed to a five-month high, beating expectations and adding to recent data suggesting the country's seven straight quarters of slowing economic growth have ended.

In addition, the Greek parliament on Sunday approved an austerity budget for next year, a necessary step to unblock a new tranche of credit from the European Union and International Monetary Fund before the government runs out of cash. Still, investors remain concerned about whether the EU and IMF will agree to send the next tranche.

In the United States, homebuilder D.R. Horton Inc reported fourth-quarter earnings that beat expectations, helped by a jump in orders. D.R. Horton's shares gained 3.1 percent to $21.23.

According to Thomson Reuters data through Friday, of the 449 companies in the S&P 500 that have reported earnings, 63.3 percent have topped expectations. But only 38.2 percent of companies have topped revenue expectations - well below the 62 percent average since 2002.

The MSCI world equity index was down 0.11 percent at 322.97 by 1552 GMT following the three days of losses last week.

In Europe the FTSEurofirst 300 Index was down 0.15 percent at 1,095.43 after last week's 1.6 percent drop. London's FTSE 100 was up 0.15 percent and Frankfurt's DAX was up 0.7 percent while Paris' CAC-40 was down 0.3 percent.

The euro rose for the first time in four sessions, above two-month lows at $1.2719. The single currency, however, is down about 1.9 percent against the dollar so far in November.

"The key question is if the latest tranche of aid will be released in time for Greece to meet a November 16th deadline on five billion euros in debt payments," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"While a deal later this week would likely support the euro, its overall gains should continue to be capped by mounting worries about economic malaise spreading from the bloc's periphery into its core," he said.

Any rise in the common currency could be short-lived as data this week is expected to show a slowdown in German economic growth and France slipping into recession.

The uncertainty over the Greek aid talks and the U.S. budget impasse supported German government bonds, with 10-year yields steady at 1.35 percent.

European credit markets were also flat with the iTraxx main index, made up of 125 investment-grade bonds, 0.4 basis points wider at 131 basis points.

In the oil market, worries about the danger of the United States, the world's top oil consumer, tipping into recession as a result of the fiscal cliff and the weak Japanese data were checked by the strong Chinese trade numbers.

Brent crude oil futures fell 8 cents to $109.32 by 1500 GMT, after gaining more than 2 percent on Friday. U.S. oil was down 22 cents at $85.85 after finishing up more than 1 percent last week to end a three-week slide.

Gold was $1.733.50 an ounce, well above a 2-month low around $1,672 hit last week.