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LONDON, Dec 9 (Reuters) - Following are five big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them.
The Federal Reserve is almost certain to raise U.S. interest rates on Wednesday. It will be the first hike of the year and only its second since the dark days of the global financial crisis. What markets are more unsure of is whether and at what pace further hikes are likely to come next year. The dollar has begun to stalk higher again and it is likely to break into at least a brisk trot if Yellen & Co. flag the chance of a string of increases, especially following Mario Draghi's latest move to extend ECB money printing. Bond markets will be watching intently and emerging markets are likely to react poorly if it's a case of Fed up, up and away.
*UPDATE 2-Fed's Evans sees period of rising U.S. interest rates ahead
*WRAPUP 1-Trump should not spend like economy in crisis -Fed officials
*WRAPUP 5-U.S. jobless rate falls to 9-year low, payrolls rise
A recent rollercoaster ride in Italian banking stocks, after Prime Minister Matteo Renzi quit following heavy defeat in a referendum, looks set to continue next week. Shares in Italian banks rose around 11 percent this week, on track for their strongest weekly performance in more than 4 years, on hopes the sector will get help from the government and the European Central Bank. But the outperformance could evaporate soon if some troubled banks fail to secure any state help. Reuters has reported that the ECB has rejected a request by Italy's Monte dei Paschi di Siena for more time to raise capital, piling pressure on the government to bail out the lender. Some analysts say that a nationalisation of BMPS is a concrete possibility in the near term, making Italian bank stocks vulnerable to a second wave of sell-off. Markets are concerned that the lingering political uncertainty could make the situation even messier and a new government could take time to figure out a proper rescue plan.
*ECB rejects Monte Paschi's request for more time to raise capital-source
*5-Star says Italy should use state money to save Monte Paschi
*UniCredit to test confidence in Italian banks with huge cash call
The European Central Bank has announced it will continue asset purchases beyond March 2017 but at a reduced pace of 60 billion euros a month. So this then, was the "taper" that the market was dreading. Or was it? ECB President Mario Draghi argued vociferously that it wasn't, because tapering would imply the programme was winding down. Furthermore, the ECB had extended the programme by nine months rather than the expected six, adding up to more money overall. The question for markets in the coming week and beyond will be how the central bank implements another change announced on Thursday - the scrapping of a limit on how low it can go in terms of yields on the bonds it buys. The euro has already swooned and short-term bond yields are again testing their all-time lows.
*Is it a taper or isn't it? The ECB says "No"
*Lower for longer, ECB scales back asset buys
*Long euro zone bonds sell off after ECB trims bond-buying
Emerging markets, highly reliant on external funding, have reconciled to a 25-basis-point Fed rate rise next week. The question is how much more is signalled for 2017. Any signs of more or faster hikes than the two 25-bps moves currently priced in could set off a fresh selloff in emerging markets after a bounceback from post-U.S. election lows - EM equities, for instance, are at one-month highs. A Fed move will force Mexico to follow suit; the peso's plunge vs the dollar has pushed inflation to 2-year highs. The Turkish lira, already bumping along near record lows, could slip another leg lower, forcing an emergency rate rise. On the other hand, Russia may shrug off the Fed: its stocks are at record highs, the rouble just enjoyed its best week since July and an $11 billion deal just proved the economy remains attractive to foreign capital. The central bank on Friday could add more fuel to this fire, should it surprise markets with a dovish message.
*Mexico seen hiking rates by 25-50 bps next week
*Emerging stocks set for best week since Sept; Moscow soars
*Russian shares to extend rally into 2017 as economy recovers
*Emerging markets better placed than 2013 to weather yield curve shift
The Bank of England meets on Thursday and while it is not expected to touch its record low interest rates or bond buying scheme, all focus will be on its views on the temperature of the UK economy and the recent steadying of sterling as Brexit wrangling begins to get serious. A deluge of data will include unemployment, retail sales and what are likely to be higher inflation numbers, and it is parliament's last week before it breaks for the Christmas recess. It could be a lively week in London.
*Bank of England's Haldane warns against hasty rate hike
*Bank of England's Carney warns of strains from globalisation
*Citi says behaved appropriately in sterling "flash crash" (Reporting by Abhinav Ramnarayan, Marc Jones, Atul Prakash and Sujata Rao; Compiled by Jemima Kelly; Editing by Ruth Pitchford)