* U.S. budget talks to continue to fiscal cliff deadline
* Global stock index on course for 13 pct gain in 2012
* Dollar, gold end 2012 with strong gains
By Steven C. Johnson and Marc Jones
NEW YORK/LONDON, Dec 31 U.S. stocks edged up on
Monday and global equities prepared to wrap up a strong year as
U.S. lawmakers held last-minute talks to avoid a budget crisis
that many fear could cripple the world economy in 2013.
Traders still at their desks on the last day of the year
were focused on talks in Washington, where politicians were
trying to agree on a deal that would prevent $600 billion of tax
increases and spending cuts from taking effect in January.
Economists fear such a blast of fiscal austerity could
shrink output in the world's biggest economy by about 4 percent,
which would threaten a fragile global recovery.
Senate Majority Leader Harry Reid said lawmakers would renew
talks at 11 a.m. Washington time (1600 GMT) but said there were
still significant differences between Democrats and Republicans
over tax policy and spending priorities.
Investors, however, have for months expected a deal would
come down to the wire and markets were taking it in stride.
After a subdued day in Asia, where Japan's Nikkei as well as
a number of other indexes had already shut for the year, limited
year-end European trading left the MSCI all-world index
on track to end the year up nearly 13 percent.
"It is still expected that a deal be reached in early
January. That will probably be greeted positively by markets,
but it looks like it will be a very short-term fix rather than
one that addresses the longer-term issues," said Bank of
Tokyo-Mitsubishi currency analyst Lee Hardman.
On Wall Street, the Dow Jones industrial average was
up 7.45 points, or 0.06 percent, at 12,945.56. The Standard &
Poor's 500 Index was up 4.53 points, or 0.32 percent, at
1,406.96. The Nasdaq Composite Index was up 17.63
points, or 0.60 percent, at 2,977.95.
The pan-European FTSEurofirst 300 has also gained
roughly 13 percent this year, largely due to the European
Central Bank's vow to tackle the region's debt crisis, an d
recovered from an early morning dip to end the year at 1,131.64.
With the world's major central banks expect ed to keep
pumping stimulus into their economies at any sign of weakness,
most eco nomists forecast further gains in equities next year.
The benchmark 10-year U.S. Treasury note was
down 10/32, with the yield at 1.74 percent, with some traders
citing a possible deal on the fiscal cliff as weighing on bonds.
STILL RISKS AHEAD
That's not to say uncertainty will evaporate in 2013. For
one thing, any deal to avert the U.S. fiscal cliff is expected
to be a temporary fix that doesn't address a long-term plan to
reduce the U.S. budget deficit, which has been above $1 trillion
for four straight years.
Europe's debt crisis, meanwhile, has eased thanks to
aggressive ECB efforts to protect the euro. Yields on Spanish
and Italian sovereign bonds, a measure of the risk creditors
attach to lending those governments money, spiked in the summer
but have since fallen sharply.
Euro zone bond markets were closed for the day on Monday
a fter a roller coaster y ear.
The euro was unchanged on Monday at $1.3210 but is up
2 percent for the year. An agreement on the U.S. budget would
also be viewed as positive for the euro because it would help
boost global growth, while deadlock is seen as dollar-positive.
"However the medium-term impact" of no U.S. budget deal is
dollar negative, said Camilla Sutton, chief FX strategist at
Scotia Capital in Toronto.
"The combination of aggressive Fed policy, the lack of a
credible fiscal plan, a challenged political system and the
impact of the fiscal drag should weigh on the dollar," she said.
Against the yen, the dollar rose as high as 86.64,
its best showing since August 2010, and was set to end the year
12 percent firmer against Japan's currency, its biggest gain
With a new Japanese government led by Prime Minister Shinzo
Abe expected to pursue a policy mix of aggressive monetary
easing and heavy fiscal spending to beat deflation, analysts see
the yen staying under pressure in 2013.
Commodities have been finding some recent support as
economic data in key emerging economies such as China have
started pointing to a gradual pick-up in the pace of growth in
Gold was $1,66 2.70 an ounce , up more than 6 percent
for the year and on track for a 12th consecutive year of gains.
Rock-bottom interest rates, concerns over the financial
stability of the euro zone, and diversification into bullion by
central banks have boosted the metal. Copper also rose, shoring
up this year's 5 percent gain.
Oil prices bucked the trend, however, slipping for a third
consecutive session, with failure to reach a solution in U.S.
budget talks seen likely to cause a serious slowdown in the
global economy and a large drop in fuel consumption.
Brent crude was down 25 cents at $110.37 a barrel.
It is up 2.8 percent and averaged more than $111.65 this year,
its fourth successive year of annual rises and above the
previous 2011 record of $110.91.
"Significant market moves are likely when the (U.S.) deal
gets done - or if no deal is done before the year-end ... In any
case, neither outcome is fully priced in," Jason Schenker,
president of U.S. consultancy Prestige Economics.