* Shares rebound, then slip on Israeli-Palestinian
* Dollar extends gain against yen after U.S. housing data
* Bond prices slip on housing starts data, fiscal cliff
By Herbert Lash
NEW YORK, Nov 20 World shares rebounded and oil
prices fell on Tuesday on news of a possible Egyptian-brokered
cease-fire in the Gaza conflict, but comments by Federal Reserve
Chairman Ben Bernanke about the potential impact of the "fiscal
cliff" sent U.S. shares lower.
World equity markets turned positive after a Hamas official
said a cease-fire was expected to take effect later in the day,
although Israel said there was still no deal.
Wall Street subsequently slipped back into negative
territory, pulled lower by comments from Federal Reserve
Chairman Ben Bernanke, who said the U.S. economy faced a series
of "headwinds." He cited damage to the U.S. housing sector and
mortgage markets and a sharp tightening in credit.
Growing speculation that euro zone finance ministers will
agree to release aid to debt-laden Greece reduced demand for
safe-haven assets, such as German bonds, and bolstered the
appetite for European equities.
Investors also squared positions before the Thanksgiving
holiday on Thursday and a long weekend.
"Investors right now are looking for signs coming out of
Cairo that there might be a brokered truce over the Middle
East," said Fred Dickson, chief market strategist at The
Davidson Cos in Lake Oswego, Oregon.
"We're rolling into a holiday weekend, tomorrow's going to
be a pre-holiday day, we're looking for the markets to slow
down," he said.
Bernanke, in comments before the Economic Club of New York,
said the Fed does not have the tools to offset the damage that
would result if politicians fail to strike a deal to prevent a
fiscal shortfall of some $600 billion.
"In the short run, we're hostage to the fiscal cliff. I
think (Bernanke's) got to be really, really fearful that
Washington doesn't get its act together and that creates
stresses on the financial system," said Dan Veru, chief
investment officer of Palisade Capital Management in Fort Lee,
U.S. stocks earlier had snapped their best two-day run in
nearly four months, a rally that had pushed the benchmark S&P
500 index up more than 2 percent since Friday over optimism a
deal could be reached to stave off looming U.S. tax hikes and
spending cuts set to take effect early next year.
But doubt over a speedy resolution of the fiscal knot which
threatens to push the economy back into recession kept investors
on edge and weighed on U.S. equity prices early in the session.
Hewlett-Packard Co tumbled 11.9 percent to $11.72
after the company took an $8.8 billion charge related to its
acquisition of software firm Autonomy, citing "serious
The computer and printer maker swung to a fourth-quarter
loss and its shares were the biggest drag on the Dow and
third-biggest on the S&P 500.
The Dow Jones industrial average was down 24.77
points, or 0.19 percent, at 12,771.19. The Standard & Poor's 500
Index was down 1.68 points, or 0.12 percent, at 1,385.21.
The Nasdaq Composite Index was down 5.95 points, or 0.20
percent, at 2,910.12
European shares rose on news of an Israeli-Palestinian
cease-fire after slipping earlier on Moody's announcement of a
cut in France's credit rating.
While France's downgrade had been expected and was largely
priced in, analysts said the previous session's big gains, when
the FTSEurofirst 300 posted its biggest daily rise in
10 weeks, meant some were using it as a reason to take profits.
The index rose 0.27 percent to close at 1,094.46, while
MSCI's all-country world equity index fell 0.02
percent at 323.70.
The Gaza conflict had supported crude oil prices over the
past week and added to worries in the equity market about the
U.S. "fiscal cliff" and the festering euro zone debt crisis.
"Yesterday's big rally was all about fears of a wider
conflict stemming from Israel and Gaza, so when the truce was
announced it's not surprising we've seen prices come right off,"
said Andy Lebow, vice president at Jefferies Bache in New York.
The dollar extended gains versus the yen after U.S. housing
starts data suggested the housing market recovery was gathering
steam, even though permits for future construction
The dollar last traded at 81.71 yen, up 0.38 percent
on the day. The euro rose as high as $1.2828 and last
traded 0.03 percent higher at $1.2815, according to Reuters
Crude oil prices fell below $110 a barrel on news of the
cease-fire, which would end a week of rocket attacks and air
strikes between Palestinians and Israelis.
Brent crude fell $1.87 to settle at $109.83 per
barrel. U.S. crude settled down $2.53 to $86.75 a barrel.
U.S. Treasury debt prices slipped for a second day as the
housing data pointed to an improving market and as investors
took more faith that lawmakers in Washington will reach a deal
to avert a budget crisis.
Benchmark 10-year Treasuries were down 14/32 in
price to yield 1.6591 percent.