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Dollar near highs as German political impasse pressures euro

The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029 (DXY), but was still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1739 , nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September's election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany's president told the parties they owed it to voters to try to form a government.

"It was primarily a euro weakness story, based on the failure to form a coalition government in Germany," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

"Stepping back from the daily activities, the big mountain that we're still looking to traverse is still tax reform -- what form, and on what timeline," Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also skeptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday, which is also a national holiday in Japan.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech later on Tuesday. Minutes from the Fed's November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89 yen, which was its lowest since mid-October.

The euro was steady on the day against the yen at 132.15 yen (EURJPY=), after skidding as low as 131.16 on Monday, its lowest since Sept. 15.

"Ahead of this week's holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away," said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

"But due largely to the euro's moves, the dollar is holding up," she said.

The Australian dollar was down 0.2 percent at $0.7536 , after falling as low as $0.7529 earlier, its deepest nadir since mid-June.

Minutes of the Reserve Bank of Australia's (RBA) Nov. 7 policy meeting showed it harbored "considerable uncertainty" about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.

Asia stocks hit 10-year high on global growth optimism, dollar strong

Asian stocks rose to a 10-year high on Tuesday as investors took heart from further evidence of strength in the global economy, while the dollar hovered near a one-week high against its peers thanks to higher U.S. yields and a floundering euro.

European markets were expected to be somewhat more subdued in early trade, with financial spreadbetters expecting Britain's FTSE (FTSE) to open 0.05 percent higher and Germany's DAX (GDAXI) and France's CAC (FCHI) to open unchanged.

Gains on Wall Street overnight helped MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) rise 0.8 percent to a fresh decade-high.

Japan's Nikkei (N225) advanced 0.7 percent, while South Korea's KOSPI (KS11) rose 0.1 percent and Australian stocks (AXJO) climbed 0.3 percent. Shanghai (SSEC) added 0.5 percent and Hong Kong's Hang Seng (HSI) was 1.3 percent higher.

Equity markets have enjoyed strong support this year thanks to rising corporate earnings on the back of an improving global economy.

That confidence was again on display overnight, with upbeat data in Germany helping the benchmark DAX (GDAXI) brush off worries over the collapse of German coalition government talks.

German data showed strong industrial activity, while the Conference Board's leading economic index for the United States rose 1.2 percent in October, double the rate economists polled by Reuters had expected.

Wall Street was led up by telecom and tech shares, with the Dow (DJI) edging back towards record highs scaled two weeks ago. (N)

In currencies, the dollar index against a basket of six major currencies stood near a one-week peak of 94.104 (DXY) touched overnight.

The greenback was boosted by rising bond yields, with the two-year U.S. Treasury yield (US2YT=RR) touching a nine-year high of 1.755 percent overnight.

The yield has risen as investors priced in more interest rate hikes by the Federal Reserve, while the Treasury is expected to increase debt issuance with a focus on short- and intermediate-dated maturities.

"The two-year yield appears to have risen too high now, as the Fed is only likely to hike rates twice at most next year considering current trends in U.S. wages and prices," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar was also lifted as the euro has been weakened by political risks arising from German Chancellor Angela Merkel's failure to form a three-way coalition government, thrusting Europe's biggest economy into a political crisis.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

"So another gray cloud has formed over euroland for investors to worry about. The euro may slide more in the days ahead unless a solution to Germany's government can be found, fast," wrote Carl Weinberg, chief economist at High Frequency Economics.

The euro inched up 0.1 percent to $1.1745 but remained near a six-day low of $1.1722 touched on Monday. A week ago, the common currency had rallied to a one-month high of $1.1862 on robust German growth data.

The dollar was steady at 112.545 yen , having bounced from a one-month low of 111.890 set overnight.

The Australian and New Zealand dollars were both slightly lower at $0.7543 and $0.6804 , respectively.

Oil prices were little changed as expectations of an extended OPEC-led production cut were canceled out by rising U.S. output. [O/R]

Brent crude futures (LCOc1) were at $62.30 per barrel, 8 cents above their last close. U.S. crude (CLc1) were 3 cents higher at $56.45 per barrel.

Spot gold crawled up 0.25 percent to $1,279.76 per ounce after sliding more than 1 percent overnight on the dollar's bounce

Merkel fourth term in doubt as German coalition talks fail

Chancellor Angela Merkel's efforts to form a three-way coalition government that would secure herself a fourth term hit a major setback after a would-be coalition partner unexpectedly pulled out of talks, thrusting Germany into a political crisis.

Merkel, whose conservatives were weakened after an election they won with a reduced number of seats, said on Monday shortly after the pro-business Free Democrats (FDP) withdrew from the negotiations that she would inform the German president that she could not form a coalition.

The development left Germany with two unprecedented options in the post-World War Two era: Merkel forms a minority government with the Greens, or the president calls a new election after parties fail to form a government.

The center-left Social Democrats (SPD), Merkel's current coalition partners who were the second-biggest party in the September election, have ruled out a repeat of a coalition with her conservatives.

"It is a day of deep reflection on how to go forward in Germany," a tired-looking Merkel told reporters. "As chancellor, I will do everything to ensure that this country is well managed in the difficult weeks to come."

The euro hit a two-month low against the yen soon after FDP leader Christian Lindner announced said before 2300 GMT on Sunday that his party was withdrawing from the talks as it could not find common ground on key issues with the two other parties.

"Today there was no progress but rather there were setbacks because specific compromises were questioned," Lindner told reporters. "It is better not to rule than to rule falsely. Goodbye!"

The three unlikely would-be partners had tried for more than four weeks to bridge differences on immigration, climate and spending.

A major sticking point had been a demand by the conservatives for a cap on the number of asylum seekers that Germany accepts each year, a measure opposed by the Greens.

'NO TRUST'

Lindner said that beyond the major sticking points, the three parties could not build enough mutual trust needed to ensure that the next government is stable for the whole four-year legislative period.

The DIHK Chambers of Industry and Commerce said a prolonged period of uncertainty would be bad for the economy.

"There is the danger that work on major issues for the future of our country will be delayed for a prolonged period of time," DIHK President Eric Schweitzer wrote in an email. "German companies must now prepare for a possibly long period of uncertainty. This is always difficult for the economy."

Merkel was weakened after the election as voters angry with her decision in 2015 to open Germany's borders to more than a million asylum seekers punished her conservatives by voting for the Alternative for Germany (AfD) far-right party.

There is little appetite for a second vote, especially as the main parties fear that the AfD would win more than the almost 13 percent of votes it secured in September.

Failure to form a government in Europe's largest economy could have implications for everything from euro zone reforms to European Union policy on Russia and Turkey.

Merkel, 63, and in office since 2005, has used her power to broker compromises on bailout aid for Greece within the single currency bloc and to keep in place EU sanctions against Russia over its backing of separatists in eastern Ukraine.

Oil markets tepid ahead of Nov. 30 OPEC meeting

Oil markets were tepid on Monday as traders were reluctant to take on big new positions ahead of an OPEC meeting at the end of the month, when the producer club is expected to decide whether to continue output cuts aimed at propping up prices.

Brent crude futures (LCOc1), the international benchmark for oil prices, were at $62.56 per barrel at 0439 GMT, down 16 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $56.59 a barrel, up 4 cents, or 0.1 percent, from their last settlement.

Traders said they were avoiding taking on large new positions due to uncertainty in markets.

The Organization of the Petroleum Exporting Countries (OPEC), together with a group of non-OPEC producers led by Russia, has been restraining output since the start of this year in a bid to end a global supply overhang and prop up prices.

The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.

OPEC is expected to agree an extension of the cut as storage levels remain high despite recent drawdowns, although there are doubts about the willingness of some participants to continue to restrain output.

"(The) OPEC meeting remains the key sector catalyst into year-end ... The market expectation is for an extension through 2018, created by OPEC comments early this fall ... (but) there is increased risk that OPEC delays the extension decision," U.S. bank Morgan Stanley (NYSE:MS) said on Monday in a note to clients.

Morgan Stanley said that the question over extended cuts "has shifted to non-OPEC participants' willingness to extend, primarily Russia".

Despite this, Greg McKenna of futures brokerage AxiTrader said it was "worth noting data showed more longs added by the speculative community", indicating expectations of rising prices.

In the United States, the number of rigs drilling for new oil production remained unchanged in the week to Nov. 17, at 738, data from oil services firm Baker Hughes showed on Friday.

Earnings power Wall Street rally; tax vote supports

Wall Street's main indexes rose sharply on Thursday, boosted by earnings-related gains in Wal-Mart (NYSE:WMT) and Cisco, while a tax bill expected to boost corporate earnings passed its first - if smallest - hurdle.

The Dow Jones Industrial Average (DJI) rose 187.01 points, or 0.8 percent, to 23,458.29, the S&P 500 (SPX) gained 21.04 points, or 0.82 percent, to 2,585.66 and the Nasdaq Composite (IXIC) added 87.08 points, or 1.3 percent, to 6,793.29.

Oil steady, but set for first weekly fall in six on lingering oversupply

Oil prices were steady on Friday but on track for the first weekly fall in six weeks, under pressure from surging U.S. supplies and creeping doubts over Russian support for continuing a cut in crude output.

Brent crude futures (LCOc1), the international benchmark for oil prices, were at $61.23 per barrel at 0746 GMT, down 3 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $55.36 a barrel, up 22 cents. Traders said strong U.S. crude exports were lifting WTI.

Still, crude was set to fall around 2-4 percent for the week on worries about growth in U.S. production and inventories, after both benchmarks touched 2015 highs last week.

"Russian support for a formalized extension of production cuts at the Nov. 30 OPEC meeting appears questionable, even if only to defer the decision to 1Q18," U.S. investment bank Jefferies said.

Crude markets have received general support in the past months by the Organization of the Petroleum Exporting Countries (OPEC), which together with some non-OPEC producers including Russia has been withholding production since January to tighten the market and prop up prices.

This has led to an almost 40-percent rise in Brent prices since June.

"The production cut agreement between some OPEC and non-OPEC oil producers led to a drop in inventories and to a recovery of oil prices," said Dutch bank ABN Amro.

"In the course of 2018 we expect a continuation of the oil price rally towards $75 per barrel," ABN said.

The deal to restrain output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss policy.

Analysts said more production restraint is needed to reduce the supply overhang.

"The problem is still that oil stockpiles are above the five-year average," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.

Khalid al-Falih, the energy minister of Saudi Arabia, which is OPEC's de-facto leader, said on Thursday that "we need to recognize that by the end of March we're not going to be at the level we want to be which is the five-year average, that means an extension of some sort."

OPEC's main obstacle in tightening the market is the United States, where crude oil production hit a record of 9.65 million barrels per day (bpd) this month, meaning output has risen by almost 15 percent since their most recent low in mid-2016.

"Let's assume that U.S. oil production continues its upward trajectory. They could very well be at 10 million bpd by the end of 2017," said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.

Oil stable as OPEC cuts counter rising U.S. supplies

Oil markets were stable on Thursday as rising U.S. crudeproduction and inventories were countered by expectations that OPEC will extend an ongoing production cut during a meeting at the end of this month.

Brent crude futures (LCOc1), the international benchmark for oil prices, were at $61.98 per barrel at 0438 GMT, 11 cents above their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $55.37 a barrel, 4 cents up from their last settlement.

"Oil shrugged off an unexpected rise in the U.S. crude inventory data...Both contracts eked out small gains," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

Despite these slight gains, Brent and WTI have lost around 4 percent in value since hitting 2015 highs last week, pulled down in part by rising crude availability in the United States.

U.S. crude inventories rose for a second week in a row, building by 1.9 million barrels in the week to Nov. 10 to 459 million barrels, the government's Energy Information Administration (EIA) said on Wednesday.

That compared to analyst expectations in a Reuters poll for a decrease of 2.2 million barrels.

U.S. crude oil production hit a record of 9.65 million barrels per day (bpd), meaning output has risen by almost 15 percent since their most recent low in mid-2016.

Despite this, analysts said prices were relatively well supported due to efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to withhold oil production in order to tighten the market and prop up prices.

The deal is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss policy, and it is expected to agree an extension of the cuts.

"OPEC, led by Saudi ... will look to support the market, especially until the sale of Aramco is complete. If sanctions against Iran are executed, it will drive the price significantly higher," said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers in Sydney.

Oil Falls to Session Lows as U.S. Crude, Gasoline Stocks Rise

Oil prices fell further on Wednesday, hitting the lowest levels of the session, after data showed a sizable increase in U.S. oil and gasoline stockpiles last week.

U.S. West Texas Intermediate (WTI) crude futures shed 71 cents, or about 1.3%, to a two-week low of $54.99 a barrel by 10:35AM ET (1535GMT). Prices were at around $55.13 prior to the release of the inventory data.

Meanwhile, Brent crude futures, the benchmark for oil prices outside the U.S., dipped 76 cents, or 1.2%, to $61.47 a barrel, its lowest since Nov. 3.

The U.S. Energy Information Administration said in its weekly report that crude oil inventories rose by 1.9 million barrels in the week ended Nov. 10. That compared with analysts' expectations for a decline of 2.2 million barrels, while the American Petroleum Institute late Tuesday reported a supply-gain of 6.5 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, fell by 1.5 million barrels last week, the EIA said.

Total U.S. crude oil inventories stood at 459.0 million barrels as of last week, which the EIA considered to be at the upper half of the average range for this time of year.

U.S. crude oil imports averaged 7.9 million barrels per day last week, up by 521,000 barrels per day from the previous week.

The report also showed that gasoline inventories increased by 0.9 million barrels, disappointing expectations for a decline of 0.9 million barrels. For distillate inventories including diesel, the EIA reported a decline of 0.8 million barrels.

Oil prices lost almost 2% on Tuesday after the International Energy Agency cut its global oil-demand forecasts and projected an increase in U.S. shale production, casting doubts over the past few months' narrative of tightening energy markets.

This week's price drop means that crude futures are now down by around 5% since reaching 28-month highs last week, ending an impressive 40% rally between June and early November.

Despite the cautious sentiment, crude prices are expected to remain supported amid optimism that oil producing countries will agree to extend an output cut at their meeting at the end of this month.

Discussions are continuing in the run-up to the Nov. 30 meeting, which oil ministers from OPEC and the participating non-OPEC countries will attend.

In other energy trading, gasoline futures slipped 0.7 cents, or 0.4%, to $1.730 a gallon, while heating oil declined 1.3 cents, or 0.7%, to $1.893 a gallon.

Natural gas futures gained 1.7 cents, or almost 0.6%, to $3.119 per million British thermal units.

Oil prices slide after IEA casts doubt over demand outlook

Oil prices fell more than 1 percent on Wednesday, continuing Tuesday's slide after the International Energy Agency cast doubts over the past few months' narrative of tightening fuel markets. Brent crude futures (LCOc1) were at $61.33 per barrel at 0515 GMT, down 88 cents, or 1.4 percent from their last close. U.S. West Texas Intermediate (WTI) crude (CLc1) was at $55 per barrel, down 70 cents, or 1.3 percent. The price falls mean that crude prices are now down by around 5 percent since hitting 2015 highs last week, ending a 40-percent rally between June and early November. "Crude prices dropped dramatically after the IEA forecast a gloomy outlook for the near future ... The drop was arguably exacerbated by a global selloff in other commodities," said Sukrit Vijayakar, director of energy consultancy Trifecta. The International Energy Agency (IEA) on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd in 2017 and 1.3 million bpd in 2018. "The oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18," the agency said. The demand slowdown could mean world oil consumption may not, as many expect, breach 100 million bpd next year, while supplies are likely to exceed that level. The IEA report countered the Organization of the Petroleum Exporting Countries, which just a day earlier said 2018 would see a strong rise in oil demand. Vijayakar said a reported increase in U.S. crude inventories was also weighing on prices. The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories rose by 6.5 million barrels in the week to Nov. 10 to 461.8 million. U.S. government inventory data is due later on Wednesday. On the supply side, rising U.S. output also pressured prices. U.S. oil production has already increased by more than 14 percent since mid-2016 to 9.62 million bpd and is expected to grow further. The IEA said non-OPEC production will add 1.4 million bpd of additional production in 2018. The IEA's outlook pressures OPEC to keep restraining output in order to defend crude prices, which its members rely on for revenue. OPEC and some non-OPEC producers including Russia have been withholding production this year to end years of oversupply. The deal expires in March 2018 but OPEC will meet on Nov. 30 to discuss policy, and it is expected to agree an extension of the cuts. "Anything less than a full nine-month extension delivered at the Nov. 30 meeting could precipitate a sell-off," U.S. bank Citi said.

Asian stocks skid as oil woes sap sentiment, euro stands tall

Asian stocks stumbled on Wednesday after weaker crude oil prices took a toll on Wall Street, while the euro kept big gains after enjoying a boost from robust German economic growth.

Spreadbetters tipped opening losses for Britain's FTSE of 0.1 percent, a 0.25 percent decline for Germany's DAX and France's CAC is seen down 0.15 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.6 percent.

China's Shanghai index was down 0.55 percent, Australian stocks dropped 0.6 percent and South Korea's KOSPI shed 0.4 percent. Japan's Nikkei lost 1.5 percent.

"The decline by U.S. equities led by energy shares is having a knock-on effect, dampening sentiment in sectors related to energy and industry," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

"Broadly speaking equities had enjoyed an almost uninterrupted run for the past few months, so we are seeing a bit of a correction finally emerging."

Lifted by steady economic growth, supportive monetary policies and solid corporate earnings, global equities have rallied hard, with those in the United States, Germany and South Korea scaling record heights recently, while Japan's Nikkei climbed a 26-year peak.

BofA Merrill Lynch's November fund manager survey found that a record high 16 percent of respondents are taking above normal levels of risk in their investment.

"Icarus is flying ever closer to the sun," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch.

All three major U.S. stock indexes dipped on Tuesday as an extended drop in crude oil prices hit energy shares and as General Electric (NYSE:GE) plunged for a second straight day. (N)

The euro stood little changed at $1.1787 after rising 1.1 percent overnight to a 2-1/2-week high of $1.1805 as data showed Germany's economy shifted into a higher gear in the third quarter.

Pressured by the euro's surge, the dollar index against a basket of six major currencies lost about 0.7 percent overnight. It last stood flat at 93.870..

The greenback was 0.2 percent lower at 113.230 yen after pulling back from a high of 113.910 the previous day.

The yen as well as Japan's equity and bond markets showed little reaction to Wednesday's GDP data. Japan's economy grew for the seventh straight quarter during the July-September period, although this was tempered somewhat as private consumption declined for the first time since the last quarter of 2015.

The immediate focus for the dollar, and a potential catalyst, was data on U.S. consumer prices due later in the global day.

Financial markets, which are betting the Federal Reserve will hike interest rates in December, will be looking for clues to gauge how many more rate increases could be in store next year.

Crude oil prices stretched losses, weighed by forecasts for rising U.S. crude output and a gloomier outlook for global demand growth in a report from the International Energy Agency (IEA). [O/R]

U.S. crude futures were down 1.1 percent at $55.07 per barrel and on track for their fourth day of losses. Brent lost 1.3 percent to $61.42 per barrel.

With oil prices having slid steadily from 28-month highs scaled last week, commodity currencies came under pressure.

The Canadian dollar stood at C$1.2740 per dollar after weakening to a one-week low of C$1.2773 overnight.

The Australian dollar faced additional headwinds after Wednesday's data showed the country's wages did not rise as much as expected last quarter.

The Aussie fell about 0.7 percent to a four-month trough of $0.7576.

Shanghai nickel and zinc tumbled alongside steel, extending losses from the previous session, with the commodities still reeling after the previous day's indicators pointed to slowing industrial production growth in China. [MET/L]

On Tuesday, a batch of data from China - Australia's biggest export market - showed the economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations.