* U.S. shares mixed, Dow industrials drop for 5th day
* U.S. dollar rises further after trade deficit narrows
* Oil prices rise on output cuts
* Two-year euro yields hit historic low
By Daniel Bases
NEW YORK, Jan 13 (Reuters) - The U.S. dollar rallied to new
high for the past month against the euro on Tuesday after news
of the biggest contraction in the U.S. trade deficit in 12
years, and ahead of an expected interest rate cut by the
European Central Bank later this week.
The U.S. trade deficit contracted 28.7 percent in November,
the biggest fall in 12 years, narrowing to $40.4 billion.
U.S. stocks ended mixed, but the Dow Jones Industrial
Average closed lower for a fifth consecutive day.
Energy-related shares provided some support to stocks
though after oil prices rebounded on Saudi Arabia's decision to
cut crude output.
European stocks fell for a fifth straight session also 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 the U.S. Congress would speedily approve the
release of the remaining $350 billion financial rescue fund 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."
FED ASSURANCES
The reiteration by U.S. Federal Reserve Chairman Ben
Bernanke that the government would consider buying
non-performing assets did little to help stocks.
The Dow Jones industrial average <> fell 25.41 points,
or 0.30 percent, to 8,448.56. The Standard & Poor's 500 Index
<.SPX> lost 1.53 points, or 0.18 percent, to 871.79. The Nasdaq
Composite Index <> dropped 7.67 points, or 0.50 percent,
to1,546.46.
Aluminum producer Alcoa <AA.N> kicked off the U.S.
fourth-quarter earnings season on a sour note on Monday after
reporting a big loss, and its shares fell more than 5.0
percent.
"There's little-to-no good news forthcoming," said Marc
Pado, a U.S. market strategist with Cantor Fitzgerald & Co in
San Francisco.
Shares of Chevron Corp <CVX.N> rose 1.4 percent to $71.82
while Exxon Mobil Corp <XOM.N> gained 1.8 percent to $77.92,
helped by higher crude oil prices.
European shares were led down 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.
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 U.S. dollar firmed against
a basket of major trading-partner currencies, with the U.S.
Dollar Index <.DXY> up 1.18 percent at 84.2 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 0.11 percent to 89.23 <JPY=>. The euro <EUR=> fell 1.31
percent at $1.32, extending a one-month decline. Sterling
<GBP=> fell 2.19 percent to $1.4502, a one-week low.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 8/32 in price, with the yield at 2.28 percent.
Intra euro zone government bond yield spreads widened to
the most 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 over 2.0 percent after Saudi
Arabia confirmed it planned to produce less than its OPEC
target while Qatar said OPEC would cut output again in March.
Profit taking cut into the gains and it settled with a 0.51
percent gain to $37.78.
Spot gold prices rose 0.20 percent to $820.95 an ounce.
(Additional reporting by Ellis Mnyandu, Pedro Nicolaci da
Costa, Wanfeng Zhou, Leah Schnurr and Deepa Seetharaman in New
York and Mike Peacock and Emelia Sithole-Matarise in London;
Editing by James Dalgleish)
