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    Home »  News »  Business

    Markets remain under pressure by fears over US budget, military escalation in the Middle East

    Smoke rises following an Israeli attack in Gaza City, Friday, Nov. 16, 2012. Early Friday, 85 missiles exploded within 45 minutes in Gaza City, sending black pillars of smoke towering above the coastal strip's largest city. The military said it was targeting underground rocket-launching sites. (AP Photo/Adel Hana)

    LONDON - Markets remained under pressure Friday ahead of the start of budget discussions between President Barack Obama and congressional leaders and as investors fretted over a military escalation in Gaza.

    Japanese stocks, however, enjoyed solid gains on hopes that elections next month may lead to more stimulus measures being enacted, in the latest attempt to get the stuttering economy moving.

    Over the past couple of weeks, a combination of factors has turned sentiment in the markets sour. As well as ongoing worries over Europe's debt crisis, investors have grown worried about the state of the U.S. public finances and rising tensions in the Middle East as Israeli troops massed near Gaza a possible signal that a ground invasion might be imminent.

    In Washington, Obama and the Republican-controlled House of Representatives have to thrash out a budget deal soon to avoid the so-called 'fiscal cliff' at the start of next year a series of automatic tax rises and spending cuts that will come into force if an agreement is not reached. Some economists estimate that could cut around 5 percentage points off U.S. growth, plunging the world's largest economy into recession and seriously derailing the global economy.

    "Investors will be hoping that there is enough collective desire to reach agreement, but it is almost inevitable that discussions will be protracted and go down to the wire, which is likely to keep markets erratic and volatile over the coming week," said Rebecca O'Keeffe, head of investment at Interactive Investor.

    "Investors will also be hoping that the focus of attention is not diverted by events in the Middle East," she added.

    In Europe, the FTSE 100 index of leading British shares was down 0.6 per cent at 5,642 while Germany's DAX fell 0.5 per cent to 7,006. The CAC-40 in France was 0.4 per cent lower at 3,370.

    Wall Street was poised for a weak opening too, with Dow futures and the broader S&P 500 futures 0.4 per cent lower.

    In the risk-averse trading environment, the dollar garnered some support through its supposed status as a safe haven financial asset. The euro was 0.4 per cent lower at $1.2736.

    Trading in Asia was similarly subdued. Hong Kong's Hang Seng rose 0.2 per cent to 21,159.01 but South Korea's Kospi fell 0.5 per cent to 1,860.83.

    Benchmarks in China fell, with the Shanghai Composite Index closing 0.8 per cent lower at 2,014.72 while the Shenzhen Composite Index fell 0.7 per cent to 800.20.

    Japan's Nikkei 225 stock index jumped 2.2 per cent to close at 9,024.16, rallying for a second straight day on expectations that the opposition Liberal Democratic Party may win elections next month and pursue more aggressive stimulus policies than the current leadership. Prime Minister Yoshihiko Noda dissolved the lower house of parliament Friday, paving the way for elections in which his ruling party will likely give way to a coalition government.

    "Equity markets in Japan have taken heart from the decision to call a snap election, with the LDP opposition promising more aggressive support for the economy," said Interactive Investor's O'Keeffe.

    Japan's exporters, whose fortunes are linked to the yen's valuation, were buoyed by the prospect of a changing of the guard. Mazda Motor Corp. soared 7.1 per cent. Nissan Motor Co. jumped 5.1 per cent. Nikon Corp. surged 7.2 per cent and Canon Inc. gained 5.8 per cent.

    The yen has also recovered its poise after two days of selling, with the dollar down 0.2 per cent at 81.10 yen.

    Oil prices tracked equities lower with the benchmark New York rate down 29 cents at $85.16 a barrel.


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