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Euro slips but still supported ahead of EU summit

(Reuters) - The euro edged lower on Tuesday but still held near a six-week high hit the previous day, supported by market expectations for European leaders to come up with broad measures to contain the region's debt crisis at a summit on Wednesday.

European leaders had neared a deal over the weekend on bank recapitalization, and euro zone officials have said that France and Germany were close to agreement on how to leverage a euro zone rescue fund to stop bond market contagion.

Hopes that euro zone leaders would soon decide on a framework to ease the debt crisis have given a boost to risky assets and the euro over the past couple of days.

"Market players seem to be closing out positions, which had been betting on a rise in risk aversion. It seems like the unwinding of such bets rather than aggressive risk-taking," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.

The euro appears to be getting support from such position unwinding, Fukaya said, adding that the euro may sag toward $1.35 or so once such short-covering runs out of steam.

The euro dipped 0.2 percent to $1.3901, hovering near a six-week high of $1.3957 hit on Monday on trading platform EBS.

Data from the U.S. Commodity Futures Trading Commission released last week shows that currency speculators still held a large net short position in the euro of 77,720 contracts in the week that ended on October 18.

The euro faces resistance near $1.3989, its 200-week moving average, with additional resistance near $1.4040, which is roughly a 50 percent retracement of the single currency's May to October decline.

On the downside, there was talk of stop-loss euro offers at levels around $1.3750.

DOLLAR/YEN

The single currency's recent rally has weighed on the dollar. The dollar index, which measures the dollar's value against a basket of currencies, stood at 76.176, near a six-week low of 75.985 hit this week.

The dollar held steady against the yen at 76.10 yen, hovering near a record low of 75.78 yen hit late last week on EBS.

Japanese Finance Minister Jun Azumi on Tuesday kept up his warning to markets about pushing up the yen too much, saying he was ready to take firm steps if the currency's appreciation becomes excessive.

One factor that has helped support the yen this year is a narrowing of yield spreads between Japanese debt and their U.S. and European counterparts, which has made overseas bond investment less attractive to Japanese investors.

"There has been a dearth of (capital) outflows from Japan," said Fukaya at Credit Suisse, adding that institutional investors such as Japanese life insurers seem unlikely to aggressively step up their overseas investment at this juncture.

Indeed, Japanese life insurers have sounded cautious about investing in foreign bonds. For example, Sumitomo Life recently said foreign debt has become unattractive after sharp drops in yields, while Asahi Mutual Life Insurance said it plans to cut its investment in foreign bonds in the six months to next March.

Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore, said his bank's forecast was for the dollar to stand at around 76 yen at the end of the year, little changed from its current level.

"It will only start trending higher when the market looks for tightening by the Fed, and that isn't going to happen for a long time," Henderson said, referring to dollar/yen.

U.S. Federal Reserve policymakers have recently stepped up their debate over how far the Fed should go to support an anemic recovery, with some doves calling for fresh monetary stimulus.

 

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Gold hits one-month high ahead of EU summit

(Reuters) - Spot gold rose nearly 1 percent on Wednesday to its highest level in more than a month, as safe-haven demand returned on growing doubts over a resolution to the euro zone debt crisis ahead of a key European Union summit later in the day.

Deep disagreement remained on critical aspects of the potential agreement among European policymakers on how to solve the debt crisis, dimming prospects for a comprehensive deal at the summit.

"In the last few days gold has shown that it is well supported, and uncertainty on European debt situation has turned investors' interest to gold," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Some arbitrage buying from Shanghai also underpinned the market sentiment, said Fung. The popular Shanghai gold forward contract jumped more than 3 percent to about 352 yuan a gram, or $1,721 an ounce.

Spot gold rose 0.9 percent to a one-month high of $1,715.51 an ounce, before easing to $1,711.59 by 0319 GMT, on course for a fourth straight session of gains.

U.S. gold hit $1,716.9, its highest since September 23, and stood at $1,713.50, up 0.8 percent from the previous close.

Fresh buying from funds and short-covering also helped gold's rally, traders said.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.9 percent to a one-month high of 1,244.156 tonnes by October 25.

Trading volumes were thin, as market participants await for the result of the EU summit, traders said.

"It is still a guessing game and all will be unraveled tonight," said a Singapore-based trader, adding that a disappointing outcome would likely further boost gold's safe-haven appeal.

Adding to the uncertainty on economic outlook, U.S. consumer confidence dropped unexpectedly to its lowest level in two-and-a-half years in October.

Spot silver lost 0.5 percent to $33.05, easing from a 4.6-percent rise in the previous session, its largest one-day rise in nearly three weeks.

Spot platinum rose to a 1-1/2-week high of $1,573 earlier, and eased to $1,571. The precious metal has already gained more than 4 percent so far this week, but remained in a deep discount of more than $140 to spot gold prices.

Investment interest in platinum group metals remained low due to uncertainties on the global economic outlook, as they are widely used in making autocatalysts.

The holdings of physically-backed exchange-traded platinum funds fell 3 percent from the end of September, and those in palladium ETFs dropped nearly 7 percent.<GOL/ETF>

Markets in Singapore, Malaysia and India are closed for the Diwali holiday.

 

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Euro zone strikes deal on 2nd Greek package, EFSF

(Reuters) - Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.

The agreement was reached after more than eight hours of hard-nosed negotiations involving bankers, heads of state, central bankers and the International Monetary Fund. It aims to draw a line under spiraling debt problems that have threatened to unravel the European single currency project.

Under the deal, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of GDP by 2020, from 160 percent now.

At the same time, the euro zone will offer "credit enhancements" or sweetners to the private sector totaling 30 billion euros. The aim is to complete negotiations on the package by the end of the year, so Greece has a full, second financial aid program in place before 2012.

The value of that package, EU sources said, would be 130 billion euros -- up from 109 billion euros when a deal was last struck in July, an agreement that subsequently unraveled.

"The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis that is sweeping across the euro zone," French President Nicolas Sarkozy told reporters afterwards.

As well as the deal on deeper private sector participation in Greece -- which emerged after Sarkozy and German Chancellor Angela Merkel engaged in the negotiations with bankers -- euro zone leaders also agreed to scale up the European Financial Stability Facility, their 440 billion euro ($600 billion) bailout fund set up last year.

The fund has already been used to provide help to Ireland, Portugal and Greece, leaving around 290 billion euros available. Around 250 billion of that will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros, which will be deployed in a variety of ways.

Leaders hope that will be enough to stave off any worsening of the debt problems in Italy and Spain, the region's third and fourth largest economies respectively.

Riskier assets across the board rallied in Asia, with stocks outside Japan up nearly three percent at 0600 GMT (2 a.m. EDT) in response to the agreement. The euro hit a seven-week high.

Earlier, U.S. stocks rallied after news emerged of the intention to boost the power of the EFSF fund.

The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from China and Brazil.

The methods could be combined, giving the EFSF greater flexibility, the euro zone leaders said.

"The leverage could be up to one trillion (euros) under certain assumptions about market conditions and investors' responsiveness in view of economic policies," said Herman Van Rompuy, the president of the European Council.

"There is nothing secret in all this, it is not easy to explain but we are going to more with our available money, it is not that spectacular. Banks have been doing this for centuries, it has been their core business, with certain limits."

PROOF OF THE PUDDING WITH MARKETS

Japan and Canada welcomed the euro zone agreement. China's official Xinhua news agency said the outcome was "positive but filled with difficulties."

As with the July 21 agreement, which quickly broke down when it became difficult to secure sufficient private sector involvement and market conditions rapidly worsened, the concern is that Thursday's deal will only work if the fine print can be promptly agreed with the private sector, represented by the Institute of International Finance.

Charles Dallara, the managing director of the IIF, said those he represented were committed to making the deal work.

"On behalf of the private investor community, the IIF agrees to work with Greece, euro area authorities and the IMF to develop a concrete voluntary agreement on the firm basis of a nominal discount of 50 percent on notional Greek debt held by private investors with the support of a 30 billion euro official ... package," he said in a statement.

"The specific terms and conditions of the voluntary PSI (private sector involvement) will be agreed by all relevant parties in the coming period and implemented with immediacy and force. The structure of the new Greek claims will need to be based on terms and conditions that ensure (net present value)loss for investors fully consistent with a voluntary agreement."

Euro zone leaders will be hoping the agreement, which will also be accompanied by a recapitalization of the European banking sector by around 106 billion euros, will finally draw a line under a crisis that has roiled financial markets and threatened to tear apart the euro single currency project.

"While the headlines look good, the devil is in the details," said Damien Boey, equity strategist at Credit Swisse in Sydney.

"It's great news that they've managed to increase the bail-out fund to 1 trillion euros plus agree on some sort of haircut arrangement for the private investors in Greek debt.

"The problem is, we don't actually know how they are planning to increase the bail-out fund size from 440 billion euros to a trillion. On top of that, there are some questions as to whether one trillion euros in itself is enough."

Jose Manuel Barroso, the president of the European Commission, said the final details on the Greek package, which follows a program of 110 billion euros of loans granted to the country last year, would only be worked out by year-end.

And EU finance ministers are not expected to agree on the nitty-gritty elements of how the scaled up EFSF will work until some time in November, with the exact date not fixed.

As part of efforts to attract investors into the special purpose vehicle attached to the EFSF, Sarkozy said he would talk to Chinese President Hu Jintao in the coming days. Beijing has so far been a big buyer of bonds issued by the EFSF, which is triple-A rated by credit agencies.

ITALIAN INTENT

As well as the three-way package to strengthen their crisis fighting powers and try to resolve the situation in Greece, euro zone leaders called on Italy to take more rapid action on pension reforms and other structural measures to try to avoid the economy heading the same way as Greece.

Prime Minister Silvio Berlusconi has promised to raise the retirement age to 67 by 2026, and pursue other adjustments to the country's economic model, steps the EU praised but said would only be positive if they were implemented.

"The key is implementation. This is the key. It is not enough to make commitments, it is necessary now to check if they are really implementing," said Barroso.

 

[EmpireGlobalfx]

Wall Street rallies on euro zone deal

(Reuters) - Stocks rallied in early trading on Thursday after European leaders agreed to boost the region's bailout fund and struck a deal with banks and insurers to accept 50 percent losses on Greek bonds.

The S&P 500 rose more than 2 percent, breaking out of a trading range of around 1,230-1,250. The broad index has been struggling to push past the levels for weeks as uncertainties over Europe persisted.

Reached after more than eight hours of hard-nosed talks between European heads of state, the International Monetary Fund and bankers, the deal also foresees a recapitalization of hard-hit European lenders and a leveraging of the bloc's rescue fund to give it firepower of 1.0 trillion euros ($1.4 trillion).

"We are rallying today because the active players, mostly hedge fund managers and tactical investors, have been very neutral to even short until now. The market is up a lot, but they are rushing into getting long because they are capitulating," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"Investors will now focus on data for November, which is expected to get weak, and possibly worse in December. That could bring up a lot of questions and predictions on the Fed move."

The Dow Jones industrial average jumped 232.57 points, or 1.96 percent, at 12,101.61. The Standard & Poor's 500 Index rose 30.20 points, or 2.43 percent, at 1,272.20. The Nasdaq Composite Index shot up 64.07 points, or 2.42 percent, at 2,714.74.

Exxon Mobil Corp was up 0.7 percent to $81.64 after the U.S. oil and gas major said profit rose 41 percent in the third quarter, helped by gains in crude oil prices and higher refining margins.

Dow Chemical Co rose 5 percent at $28.22, even as it narrowly missed quarterly profit expectations.

 

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Global stocks at 3-month highs, euro underperforms

(Reuters) - Global stocks advanced and headed for their best week in over two years Friday, bolstered by EU leaders' efforts to contain the euro zone debt crisis which have stoked appetite for riskier assets, although the euro lagged the rally.

The single currency came under slight pressure after yields at the sale of 10-year Italian bonds hit a euro-era high above 6 percent. Despite higher yields, demand was lower than previous auctions, underlining how cautious investors are on peripheral debt despite the EU rescue deal and pledges by Italy to reform.

With investors for the time being shrugging off the lack of detail in Thursday's anti-crisis measures in Europe, the region's shares extended the previous session's sharp rally.

The FTSEurofirst 300 .FTEU3 index of leading European shares was up 0.15 percent at 1,021.63 points in early trade. The index is up 11 percent this month and is on track for its biggest monthly rise since April 2009.

Solid third-quarter sales from French car maker Renault (RENA.PA) also lifted the broader index. Banking shares .SX7P, which have been battered by contagion fears from a possible Greek default, advanced 1.8 percent, extending their 8.9 percent surge Thursday.

World stocks as measured by the MSCI index rose 0.4 percent to 319.09 -- having hit the highest level in nearly three months of 319.78 earlier in the day.

U.S. stock index futures pointed to some signs that the stock market euphoria was flagging. Futures for the S&P 500, the Dow Jones and the Nasdaq 100 were all down 0.4 to 0.5 percent.

Fredrik Nerbrand, global head of asset allocation at HSBC, said the lack of details out of the European summit was causing some discomfort to investors.

"I find it curious and if anything rather worrying that Italian bond yields are up to the level as they were before the summit, while the equity markets are completely decoupled from that," he said.

Euro zone leaders are now under pressure to finalize details of their plan to slash Greece's debt and strengthen the European Financial Stability Fund (EFSF), possibly through investment by emerging economies like China and Brazil.

The head of the fund, Klaus Regling, said Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing.

FOCUS ON G20 MEET

Investors' focus is also shifting to a Group of 20 meeting next week in Cannes, southern France.

Edmund Shing, equity strategist at Barclays Capital, said stocks were likely to recover further next week ahead of the G20 summit on November 3 and 4 as investors would not want to bet against policymakers for now. But he advised investors not to chase the market too aggressively.

The euro slipped to $1.4170, taking a breather from a rally Thursday which sent it to a seven-week high of $1.4248. It fell to near session lows of around $1.4158 after the Italian bond auction results.

"Although we're getting somewhere with EFSF, the Italian auction shows the market is sending signals that the crisis hasn't been solved by a long shot," said Stephen Gallo, head of market analysis at Schneider FX.

The dollar index .DXY was up 0.15 percent after falling some 1.6 percent, its biggest one-day fall since May 2009.

Analysts said with stocks looking to advance further, the sell-off in the dollar is expected to continue.

Brent crude slipped to around $111.09, but prices were on track to post a weekly gain.

Spot gold retreated from a one-month high of $1,751.99 at $1,736.69 an ounce, down 0.4 percent from the previous close. But it was still on course for a gain of around 6 percent from a week earlier, the biggest one-week rise in two months, according to Reuters graphics.

 

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Oil eases as dollar strengthens

(Reuters) - Oil prices eased on Monday, with Brent slipping below $110, as the dollar rose against the yen after Japan intervened in the currency markets to stem the rise of the yen.

Investors and analysts said the oil market may be swayed by

a spate of economic events this week including a U.S. Federal Reserve on Wednesday, a European Central Bank press conference on Thursday and a G20 meeting mid-week amid deepening concerns over the euro zone debt crisis.

Brent crude fell 51 cents to $109.40 a barrel by 0949 GMT after closing at $109.91 on Friday.

U.S. crude fell 82 cents to $92.50 per barrel.

The dollar climbed to a three-month high against the yen on Monday after Japan's intervention. The U.S. dollar index .DXY also rose against a basket of currencies. A stronger dollar makes oil more expensive in other currencies.

"This morning, it is the Japanese intervention in the foreign exchange market. On the macro front, it is a big week this week," Olivier Jakob with Petromatrix said.

Jakob also said trading of the price spreads between U.S. crude and Brent and of the forward curve might continue to influence the market this week.

In the middle of last week U.S. crude rallied on trading of its spread with Brent, while Brent was held back as backwardation of the curve flattened. Both got a brief boost from a deal struck by the euro zone to recapitalize its banks and strengthen its rescue fund.

But persistent doubts about the plan have put pressure on the market, and the outright price of Brent crude ended Friday little changed from the week before.

The oil market reaction to euro zone inflation and jobs data on Monday was limited. Consumer prices in the 17-nation euro area stayed at 3 percent in October, according to a first estimate by the European Union's statistics office Eurostat, roughly in line with a 2.9 percent forecast in the Reuters poll of economists.

Eurostat in a separate report said the jobless rate in the euro zone rose slightly to 10.2 percent in September from a revised 10.1 percent in August.

 

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Stocks, euro rise; wariness over Greece lingers

(Reuters) - U.S. and European stocks stabilized and the euro rose on Wednesday as buyers emerged after a steep sell-off on fears that Greece's referendum on its bailout could push the country into default.

Greek Prime Minister George Papandreou won his cabinet's backing on Wednesday to hold a referendum on a 130-billion-euro bailout package for the euro zone.

Investors will likely remain nervous about the solvency of Greece and the euro zone's financial stability until Greece's referendum vote, which would take place in early 2012, analysts said.

"After yesterday's sell-off, some bounce was expected, but we think there are a lot of hurdles for the euro to clear and given the risk events, we do not see it rallying much," said Adam Myers, senior currency strategist at Credit Agricole in London.

Papandreou will later face the leaders of France and Germany, who summoned him for crisis talks in Cannes before a G20 summit of major world economies to push for quick implementation of the bailout deal.

Rejection of the package could lead to a disorderly default for Greece with the fallout affecting the European banks that hold Greek debt.

The euro rose 0.8 percent against the dollar to $1.3807 and gained 0.4 percent versus the yen to 107.66 yen.

The MSCI world equity index .MIWD00000PUS rose nearly 1 percent after losing 6 percent the previous two sessions.

Less dismal data on the U.S. job market and hopes of more policy easing from the U.S. Federal Reserve and the European Central Bank also supported stocks and the euro and exerted selling pressure on German Bunds and U.S. Treasuries.

On Wall Street, at around 10:15 a.m. ET (1415 GMT), the Dow Jones industrial average finance/markets/index?symbol=us%21dji">.DJI gained 129.57 points, or 1.11 percent, to 11,787.53. The S&P 500 .SPX added 14.61 points, or 1.20 percent, to 1,232.89. The Nasdaq Composite .IXIC rose 17.59 points, or 0.67 percent, to 2,624.55.

European stocks .FTEU3 rose 0.2 percent by 10:15 a.m. ET (1415 GMT), recovering early losses ahead of the U.S. open.

In Tokyo, the Nikkei .N225 closed down 2.2 percent following the sell-off on Wall Street and in Europe.

The stabilization in stocks and euro led investors to reduce their safehaven holdings of U.S. and German debt.

Bund futures fell 77 basis points to 137.38 after touching a near one-month high on Tuesday, while the benchmark 10-year U.S. Treasury note fell 12/32 in price to yield 2.04 percent.

In the commodities market, Brent crude futures in London were up $1 at $110.55 a barrel, while U.S. crude futures were 72 cents higher at $92.89.

Spot gold rose about 1 percent to $1,738.20 an ounce.

 

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ECB cuts rates in surprise move

(Reuters) - The European Central Bank cut interest rates by a quarter point to 1.25 percent in a surprise move Thursday, acting boldly to support the ailing euro zone economy at President Mario Draghi's first policy meeting in charge.

The move gave an immediate boost to stock markets, which will be looking for any signal at Draghi's first post-policy meeting news conference on whether the ECB is ready to boost its bond purchases to calm tensions in the euro area.

The Italian has walked into a maelstrom in his first week at the ECB's helm, with euro zone leaders contemplating a future without Greece and economic policy paralysis in his home country threatening to push Rome into the eye of the storm.

The decision to cut rates was unexpected and came despite inflation in the 17-country euro zone staying at 3.0 percent for a second month running in October, well above the ECB's target of just below 2 percent.

"What a starter. It is obvious that the ECB has caught the crisis virus and is trying everything it can to prevent a full-fledged recession," ING economist Carsten Brzeski said.

"Now, the big question for the press conference is whether the ECB is also willing to do everything to prevent a further escalation of the sovereign debt crisis, becoming the unconditional lender of last resort of the euro zone."

The euro fell after the rate decision and stock markets caught a tailwind, with an index of European top shares up 2.3 percent on the day. German 2-year bond yields fell and December Euribor future jumped 13 basis points.

European leaders said earlier they were prepared for Greece to leave the euro zone to preserve their 12-year-old single currency if Athens does not decide quickly to implement a bailout program, putting the likes of Italy and Spain, and even France, firmly in the markets' sights.

Draghi will join the leaders in Cannes, France, after his debut news conference as ECB president at 1330 GMT at which he will give a statement on the Governing Council's policy decision before taking journalists' questions.

Crucial will be any indication Draghi gives about carrying on, or even scaling up, the ECB's bond-buy program, a controversial tool that has led to the resignation of two German policymakers.

Europe's ultimatum to Greece, after Prime Minister George Papandreou's decision to call a referendum on a bailout plan, has deepened the crisis and raised pressure on the ECB, which many analysts see as the only institution with the firepower to bring calm.

BOND BUYING

Draghi succeeded France's Jean-Claude Trichet as ECB chief Tuesday -- a day that saw the ECB buy Spanish and Italian bonds but barely manage to cap a rise in yields on the debt of the euro zone's third largest economy.

"I'm looking for something but I expect him to stick to the Trichet language and say 'it's still ongoing'," Brzeski said of the bond-buy program.

Draghi must balance an eagerness to curry favor with the German contingent at the ECB against growing financial market pressure to intervene on a bigger scale to lower the borrowing costs of Italy and Spain.

The premiums investors have to pay to hold Italian and French 10-year government debt over benchmark German Bunds rose to their highest in the euro era Thursday with signs growing that the Greek government may fall.

Draghi appeared to indicate last week that he stood ready to help tackle the debt crisis by going on buying the bonds of troubled states, though Trichet told Reuters the Italian's remarks had been over-interpreted.

Trichet had signaled previously that the ECB was keen to withdraw from the bond-buying policy once the euro zone's EFSF rescue fund gained new powers to intervene on bond markets.

 

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Euro shares edge higher on Greece consensus hopes

(Reuters) - European shares drifted higher in choppy trade on Friday as signs Greece would seek political consensus on a new aid package and dump a referendum helped cap some fears of an imminent default, although the outcome remains uncertain.

Banks, many of which have a significant exposure to the peripheral euro zone economies and have taken a hit on their balance sheets, were among the top gainers, while miners got some support from firmer metals prices that rose on hopes of an improvement in demand for raw materials.

The STOXX Europe 600 banking index .SX7P rose 1 percent, while the basic resources index .SXPP was up 1.2 percent. Royal Bank of Scotland (RBS.L) rose 4.3 percent on its third-quarter profits and robust capital position.

However, Commerzbank (CBKG.DE) fell 2.5 percent after it took a Greek impairment hit, forcing it to abandon its 2012 operating profit target.

The FTSEurofirst 300 finance/markets/index?symbol=gb%21FTPP">.FTEU3 index of top European shares was up 0.3 percent at 993.06 points at 0956 GMT (5:56 a.m. EDT), after climbing 1.9 percent in the previous session, on hopes the referendum, which could be the beginning of an exit for Greece from the euro zone, could be avoided.

Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters.

"Even if Greece doesn't have a referendum, you have got several weeks of political instability there. They could very well have to form a new government, which delays the ratification of the whole process.

"It seems a Greek drama has been avoided for the time being as there are some signals that the proposed referendum on the bailout package will be scrapped," said Koen De Leus, strategist at KBC Securities, in Brussels.

"But the situation is far from clear yet and there is a possibility that the Greek government might fall, which would mean that no bailout money will be available to them for some time. Any such outcome would create more uncertainties."

Investors kept a close eye on a meeting of G20 leaders in Cannes that discussed increasing the International Monetary Fund's resources and building a financial firewall to protect vulnerable euro zone economies Italy and Spain from a possible Greek default.

Fund managers said that investors would stay highly cautious unless there was some clarity on the Greek situation.

"Even if Greece doesn't have a referendum, you have got several weeks of political instability there. They could very well have to form a new government, which delays the ratification of the whole process," said Felicity Smith, fund manager at Bedlam Asset Management that manages $700 million.

"We are trying to see if, in the panic, some otherwise perfectly good and sound companies get unduly knocked back. Some of those industrial stocks, which have a variety of businesses and where the end demand is likely to be robust, could be interesting," she said, giving an example of British engineer Invensys (ISYS.L).

Investors awaited data on U.S. employment growth, which is expected to show that it was too weak in October to pull down the nation's lofty jobless rate, though it may have been strong enough to suggest some economic momentum is building.

The 30-day implied volatility for Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI fell for a second straight session on Thursday, according to data from Thomson Reuters Datastream, indicating that investors were gradually increasing their exposure to riskier assets.

The Euro STOXX 50 volatility index .V2TX, Europe's main fear gauge, also fell 4.5 percent on Friday, suggesting an improvement in investors' sentiment.

 

[EmpireGlobalfx]

Brent crude climbs over $114 on euro zone hopes

(Reuters) - Brent crude oil jumped more than $2 per barrel to more than an seven-week high on Monday on hopes Greece and Italy could resolve their debt crises and minimize the chances of a further slowdown in global economic growth.

Brent futures for December rose $2.91 to a high of $114.88, their highest since mid-September, before easing back to trade around $114.50 by 1440 GMT. Brent settled $1.14 higher on Friday, rising for a second week.

U.S. December crude oil futures rose $1.20 to $95.46 a barrel. The contract rose 1 percent last week, posting a fifth straight weekly gain.

The market rose through early European trade and took another step higher as U.S. traders came into the market, brokers said.

"We started strong today, then there was a slight fall in prices, and now we see a positive spin with news on Greece and Italy," said Robert Montefusco, a senior broker at Sucden Financial Ltd.

Italy, with debts amounting to 120 percent of gross domestic product, has the biggest government bond market in the euro zone. An Italian financial collapse would pose a huge risk to markets but might bring an administration that would be better able to handle the debt crisis, some investors say.

Italian Prime Minister Silvio Berlusconi on Monday denied reports he was about to resign.

In Greece, political change is also on the agenda as leaders set to choose who will lead a new coalition and push through a bailout before the country runs out of money in mid-December.

The dollar and gold rose on Monday as investors looked for safe havens, while many stock markets, base metals and other risky assets fell. The MSCI world equity index .MIWD00000PUS shed 0.7 percent and the FTSEurofirst finance/markets/index?symbol=gb%21FTPP">.FTEU3 fell 0.5 percent.

"Economic news around Italy and Greece is dominating the market," said Christophe Barret, global oil analyst at Credit Agricole.

Prime Minister George Papandreou and opposition leader Antonis Samaras agreed to form a new coalition government, but details of a deal to resolve Greece's debt crisis remained sketchy, while the country was due to run out of money in a few weeks.

The European Union told Greek leaders to explain by Monday evening how they would form a government to get 130 billion euros ($180 billion) in emergency funding.

ITALY

Market attention, meanwhile, shifted to Italy as its government bond yields hit their highest levels since 1997 and political turmoil threatened to drag the economy deeper into crisis.

Italy faces a vote on public finance in parliament on Tuesday, and the center-left opposition said it was preparing a motion of no-confidence that would bring Berlusconi down even if he should survive Tuesday's vote.

Seasonal factors offered some support to oil.

Low fuel inventories in the world's top oil consumer, the United States, amid signs of an earlier-than-usual onset of winter may prompt refiners to ramp up output. That may further squeeze an already tight crude market coping with disruption in supplies from Libya and the North Sea.

Investors watched the unfolding bankruptcy of MF Global (MFGLQ.PK). CME Group (CME.O) and IntercontinentalExchange Inc (ICE.N) moved over the weekend to limit the fallout from the bankruptcy filing on futures markets by lowering margin requirements on some accounts.

The CME said on Monday it asked brokers who have taken over customer accounts from MF Global, which filed for bankruptcy protection on October 31, to not disburse any of the money until the close of business on Tuesday as it looks to verify the amounts involved.