* U.S. shares slip, Europe drops for 5th straight day
* Euro slides ahead of expected ECB rate cut this week
* Oil prices rise on output cuts but profit-taking hits
* Two-year euro yields hit historic low
By Daniel Bases
NEW YORK, Jan 13 (Reuters) - The U.S. dollar extended a
one-month high against the euro on Tuesday ahead of an expected
interest rate cut by the European Central Bank and on news of
the biggest contraction in the U.S. trade deficit in 12 years.
U.S. stocks were mixed, with gains in energy-related shares
providing support after oil prices rebounded on Saudi Arabia's
decision to cut output and cold weather hit the United States,
although profit taking hit oil and shares later slipped a bit.
European stocks fell for a fifth straight session on
intensifying concerns about the global economic slump that is
expected to lead the ECB to cut its benchmark interest rate
half a percentage point to 2.0 percent at Thursday's meeting.
"The euro should spend the day trying to resist the
negative sentiment being placed upon it, however the current
trend suggests this will be a difficult task," said Sacha
Tihanyi, currency strategist at Scotia Bank in Toronto, in a
research note.
ECB President Jean-Claude Trichet said on Tuesday the euro
zone economy faces pressing challenges and cannot afford to let
down its guard, adding "a lot of work remains to be done" to
address the financial crisis.
Hopes that Washington would work speedily on a plea by U.S.
President-elect Barack Obama for the remaining half -- $350
billion -- of financial rescue funds to stabilize credit
markets helped underpin U.S. stocks.
"Obama is in a much better position to work with Congress
than the previous administration," said Gail Dudack, chief
investment strategist at Dudack Research Group in New York.
"The market wants to see some very pragmatic action, and Obama
is trying to do that."
MARKETS
Equity investors also took comfort from comments by U.S.
Federal Reserve Chairman Ben Bernanke that the government would
consider buying troubled assets. However a more proactive
central bank softens the safe-haven bid for U.S. Treasuries.
In U.S. trade, shares of Chevron Corp <CVX.N> climbed 1.24
percent to $71.70 while rival Exxon Mobil Corp <XOM.N> gained
1.76 percent to $77.89.
Any broad advance was limited, however, by a fall in shares
of financial services companies as investors fretted about the
possibility of more credit losses and uncertainty over
Citigroup's <C.N> outlook.
Citigroup is close to selling a controlling stake in its
Smith Barney brokerage business to Morgan Stanley <MS.N>.
In early afternoon trading, the Dow Jones industrial
average <> was down 59.18 points, or 0.70 percent, at
8,414.79. The Standard & Poor's 500 Index <.SPX> was down 4.98
points, or 0.57 percent, at 865.28. The Nasdaq Composite Index
<> was down 6.42 points, or 0.42 percent, at 1,532.37.
European shares were led lower by losses in banks. The
FTSEurofirst 300 <> index of top European shares fell
1.51 percent to 840.36, all but wiping out the gains achieved
since the end of 2008. The index fell 45 percent last year.
Two of Europe's top retailers also bore the scars of
recession -- Britain's Tesco <TSCO.L> reported its weakest UK
Christmas sales growth since the early 1990s and Germany's
Metro <MEOG.DE> posted slower fourth-quarter sales growth. For
details click on [].
Japan's Nikkei average <> fell 4.8 percent 8,413.91,
its lowest close in a month after a strong yen hurt exporters
at a time when firms are worried about earnings.
Global risk appetite deteriorated this week after Standard
& Poor's warned about the ratings on several countries
including the United States, Spain, Greece and New Zealand.
[]
In foreign exchange trading, the dollar firmed against a
basket of major trading-partner currencies, with the U.S.
Dollar Index <.DXY> up 1.4 percent at 84.392 from a previous
session close of 83.214, buoyed by the U.S. trade data and the
expected ECB rate cut.
The dollar rebounded from a one-month low against the yen,
rising 0.46 percent to 89.54 <JPY=>. The euro <EUR=> fell 1.27
percent at $1.32, extending a one-month decline. Sterling
<GBP=> fell 1.97 percent to $1.4536, a one-week low.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 4/32 in price, with the yield at 2.30 percent.
Intra euro zone government bond yield spreads blew out to
their widest since the launch of the euro a decade ago as
investors piled into German Bunds, the safest and most liquid
of regional government debt.
Ten-year Portuguese, French, Belgian, Greek, Spanish and
Dutch bonds were all yielding their biggest premiums over
benchmark Bunds since 1999, according to Reuters charts.
Crude oil prices <CLc1> rose more than 2 percent after
Saudi Arabia confirmed it planned to produce less than its OPEC
target while Qatar said OPEC would cut output again in March,
but profit taking cut into the gains and it was trading around
$37.24 in the early afternoon, down almost 1 percent.
Gold rose 0.26 percent to $821.45 an ounce.
(Additional reporting by Ellis Mnyandu, Pedro Nicolaci da
Costa and Wanfeng Zhou in New York and Mike Peacock and Emelia
Sithole-Matarise in London; Editing by James Dalgleish)
