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Financial Focus

EUROPE is in the midst of a severe credit crunch that has seen the market for bank debt disappear as the continent’s money supply shrinks. The conditions are so tough they have sparked a row between the region’s most senior regulators over how to shore up Europe’s crumbling banking system as politicians fall further and further behind the curve. As they wait for clarity from the region’s leaders, banks and investors are simply sitting on cash.

Concerns are mounting that Britain may have to contribute a further £30bn to Eurozone rescue loans through the International Monetary Fund, matching the sorts of burdens shouldered by Germany, France and other EMU states. The fund revealed in its official Survey Magazine that non-euro countries would put up a quarter of all new money under the EU summit deal.

MARKETS:

HONG KONG and China shares edged lower this morning, poised for a fifth-straight session of losses in weak turnover that is expected to extend into final weeks of 2011. Strength in utilities pointed to caution, with an uncertain outlook for the Chinese economy and the euro zone debt crisis likely to keep investors wary of risk going into the New Year. The coverage of Hang Seng Index was down 0.18% at 18,413.79 at the midday trading break.

FINANCIAL SPREADBETTERS expect the leading European benchmark indexes to fall today, after the U.S. Federal reserve warned Europe’s debt crisis was a big risk to the U.S. economy but fell short of announcing fresh stimulus measures. Late on Tuesday, the U.S. Federal Reserve left monetary policy on hold and said financial market turbulence posed threats to economic growth. The central bank left the door open to further easing next year, as it has done after recent meetings, but gave no indication it was any more inclined to provide new economic stimulus.

CURRENCIES: THE EURO traded 0.2% from an 11-month low as European nations prepare to sell bonds amid concern the region’s debt crisis is far from resolution. The dollar held gains from yesterday against most of its 16 major counterparts after the Federal Reserve said the U.S. economy is maintaining its expansion and refrained from taking new action to lower borrowing costs; easing concern policy makers are devaluing the world’s reserve currency.

ENERGY: OIL prices jumped 2% yesterday as fears over Iran and threats to major shipping lanes sent US crude above $100 a barrel. Crude futures briefly surged nearly $4 a barrel after a frenetic spell of trading in New York at the start of the day. The rise was also driven by the closure of the Houston Ship Channel, reports of bombs hitting an Iraqi crude pipeline, hopes of further US monetary easing – later dashed – and computer-driven trades.

COMMODITIES: GOLD rallied from the lowest level in almost eight weeks as the biggest two-day drop since September spurred more purchases and investor holdings climbed to a record, countering the effect of a stronger dollar. “If you’re a gold investor now, you’re torn between two worlds: a recovering U.S. market and Europe falling to pieces,” Tom Price, an analyst at UBS AG, said speaking to Bloomberg. Investors are “trying to weigh out which one actually dominates the gold price, and for at least the next week, the gold price is going to struggle because of the improving U.S. market outlook.”

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