A global share market rally petered out today as investors began worrying about likely US political battles over spending cuts, halting the gains that followed a congressional deal to avoid sharp tax increases.
The MSCI world equity index dipped from an 18-month high to be down 0.1 per cent at 346.7 points while other riskier assets such as oil and the euro also eased.
The main share indexes in Germany, Britain and France were down 0.1 to 0.4 per cent, having hit multi-month highs yesterday when relief swept the markets after US politicians reached a deal to prevent a fiscal crunch.
The euro, which had touched an eight month high against the dollar yesterdatday, was down was down 0.2 per cent at $1.3162, .
US president Barack Obama and congressional Republicans face two months of tough negotiations on spending cuts and an increase in the nation's debt limit after the hard-fought deal averted the "fiscal cliff" of automatic tightening that had threatened to push the US into recession.
"Investor concerns will now likely switch to uncertainty surrounding the raising of the US debt ceiling which will involve another political battle over controlling public spending," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
Today's retreat might have been sharper but for data showing activity in China's services sector and at US factories had expanded in December, brightening the outlook for global growth.
Investors are now focusing on the December US employment report which is due tomorrow. This is expected to show modest job growth of around 150,000 compared with 146,000 in November.
"After the initial excitement, reality sets in," said Victor Shum, oil consultant at IHS Purvin & Gertz. "There will be other negotiations and the deal is a compromise."
Reuters
