European stocks mixed as US fiscal deal rally fades

European stock markets were mixed on Thursday as investor enthusiasm waned over the US fiscal cliff deal that had sparked a rousing global rally on the first trading day of the year.

London's benchmark FTSE 100 index of top companies added 0.33 percent to close at 6,047.34 points, while Frankfurt's DAX 30 index dropped 0.29 percent to 7,756.44 points and the Paris CAC 40 fell 0.34 percent to 3,721.17 points.

All three indices had surged by more than two percent on Wednesday, in a bright start to 2013, after US lawmakers agreed a deal to avert the so-called fiscal cliff.

On Wall Street, US stocks were also mixed in midday trading on Thursday, with the Dow Jones Industrial Index down by a slight 0.06 percent, the broad-based S&P 500 up by 0.11 percent and the Nasdaq Composite adding just 0.05 percent.

Back in Europe, Madrid's Ibex-35 index lost 0.52 percent but Milan's FTSE Mib rose by 0.10 percent, one day after both key peripheral eurozone countries had soared by more than three percent.

While Democrats and Republicans in the US Congress reached a compromise, they also just delayed the imposition of spending cuts for two months, meaning another debilitating stand-off is almost certain at the end of February.

The rally on Wednesday was "overshadowed by concerns that US lawmakers have only kicked the can down the road like their European cousins have done through much of 2012," ETX Capital analyst Ishaq Siddiqi noted.

At Capital Economics, Julian Jessop warned that given the "cantankerous" climate of the negotiations, there could be another stand-off leading to "a shutdown of the federal government" at the end of February or beginning of March.

Meanwhile, new claims for US unemployment insurance benefits rose slightly last week during the year-end holiday season, Labor Department data showed.

In foreign exchange activity, the euro fell to $1.3110 from $1.3184 late in New York on Wednesday, when it had struck a two week high at $1.3300. Gold prices declined to $1,679.50 an ounce on the London Bullion Market from $1,693.75.

On secondary sovereign bond markets, 10-year debt issued by Spain traded at 5.026 percent, down from 5.037 percent on Wednesday, while the comparable Italian rates were 4.242 percent, down from 4.276 percent.

Global stocks began 2013 with a bang on Wednesday after Washington sealed a last-minute deal to avoid a combination of huge tax rises and spending cuts which would likely have pushed the United States back into recession.

Now however, concern has shifted to efforts to lift the US debt ceiling at the end of February, with analysts warning that the country could see a repeat of a row in summer 2011 that saw Washington's credit rating downgraded for the first time.

The "focus will soon turn to fresh talks on raising the US debt ceiling to allow the government to continue borrowing," said Lloyds Banking Group strategist Eric Wand in a research note.

"In particular, there is a concern that Republicans could be more obstinate on spending and entitlement reform as many feel that they gave up too much in this latest deal," he added.

Asian equities traded mixed on Thursday, with concerns over upcoming fights in Washington hurting sentiment.

The yen clawed back some of its losses against the euro and dollar but remains under pressure on expectations of further monetary easing by the Bank of Japan.

Sydney rose 0.74 percent to hit the highest since May 2011, and Hong Kong added 0.37 percent, while Seoul slipped 0.58 percent. Shanghai and Tokyo were closed for public holidays.

burs-wai/arp

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