US SUMMARY: Worries Restrain Share Gains

DJIA 10796.26 gain 18.49 up 0.2%
NASDAQ 2228.94 gain 2.05 up 0.09%
S&P 500 1258.17 gain 1.63 up 0.1%
Dow Future 10845.00 gain 7.00 up 0.1%
NASDAQ Future 1682.00 gain 1.00 up 0.1%
S&P Future 1266.00 gain 0.75 up 0.1%
10-Yr US Treasury: 4.37% up 0.03
(Futures values as of 0550 GMT)

Rising oil prices and the inverted yield curve on the bond market cut into Wall Street's early gains Wednesday, leaving stocks with only a modest advance. Prices of Treasurys edged lower.

STOCKS: The market pulled back in response to a jump in crude oil prices. Oil gained after Iran's oil minister was reported to have said the Organization of Petroleum Exporting Countries should consider lowering its output by one million barrels a day at its Jan. 31 meeting. A barrel of light crude settled at $59.82, up $1.66, in trading on the New York Mercantile Exchange.

Still, "the yield curve has people on edge," said Peter Cardillo, chief strategist, senior vice president and market analyst at S.W. Bach & Co. "It's certainly keeping the market in a tight trading range."

Some market participants are worried the yield inversion could herald a U.S. recession.

The U.S. dollar gained against other major currencies. Gold prices were higher.

Stocks received an early boost from the Conference Board's report that consumer confidence surged in December. The reading, which improved because of declining gasoline prices and better job opportunities, is nearing levls it was at in August, before Hurricane Katrina.

Other economic indicators were mixed.

The Mortgage Bankers Association's index of applications to buy a home or refinance an existing mortgage declined 6.8%, hitting its lowest level since June 2002, while a weekly index of retail sales showed strength in the week leading up to Christmas, according to UBS.

"The consumer numbers look fairly strong, although at least some of that strength is likely to fade in coming months if housing continues to weaken," said Maury Harris, an economist for UBS. "The mortgage applications data suggest home prices are already weakening."

BONDS: U.S. Treasury prices fell as the recent inversion of the curve for the first time since late 2000 has been downplayed by some bond investors.

Investors expect month-end buying will help the long end, while a $20 billion sale of new two-year notes Thursday is a negative for the front end.

Analysts at RBS Greenwich Capital noted "auction-related selling could lead further inversion," and that the sale amid the holiday week means demand for the issue "will likely be modest."

ASIAN SUMMARY: Tokyo Shares Rally; Oil Rise Slows

USD-Yen 117.82 loss 0.08 dn 0.07%
AUD-USD 0.7296 gain 0.0010 up 0.1%
Nikkei 225 16331.18 gain 136.50 up 0.8%
Hang Seng 15128.05 gain 26.51 up 0.2%
Taiwan Index 6575.53 gain 51.13 up 0.8%
S.Korea Kospi 1379.11 gain 10.95 up 0.8%
JGB Yield 1.5200% unchanged
(All values as of 0550 GMT)

STOCKS: Japanese stocks rallied Thursday as traders bought exporter blue chips and economy-sensitive stocks extending gains after hitting a five-year high the day before.

BONDS: Prices of Japanese government bonds traded little changed as attention centered on improving stocks.

OIL: February crude futures rose 13 cents to $59.95, as the market calmed down from the price surge in New York.

EUROPEAN OUTLOOK: Markets May Start Little Changed

Prices of European shares, government debt and the euro are likely to start little changed Thursday, though with an upward bias.

Euro-USD 1.1850 gain 0.0015 up 0.1%
Stlg-USD 1.7218 gain 0.0049 up 0.3%
USD-Franc 1.3150 loss 0.0017 dn 0.1%
(All values as of 0550 GMT)
STOCKS: Prices of shares may open slightly higher, with an upward bias as the session wears on. U.S. jobless and energy data could stir things up later.

Spreadbettor Cantor Index is caling the FTSE 100 up 9 points at 5631, the DAX up 8 at 5455 and the CAC 40 up 8 points at 4764.

European equities closed mixed on Wednesday, though upbeat German confidence data put a floor under trading and companies in defensive sectors advanced.

BONDS: Prices of European government debt may open little changed, but some investors may seek to probe the bund's resistance later.

A broker said the bund future's next technical target is in the 121.95-122.00 area, after it closed at 121.72.

Analysts said the release of euro-zone money supply and Italian producer price data at 0900 GMT Thursday may provide a talking point but is unlikely to shake the market from its current holiday lethargy.

"Some risk takers may take advantage of the quietness and the possibility for large spikes on low volume to try and move the market in their direction, but at this time of the year many risk takers will have taken their chips off the table," said Andy Chaytor, an interest rates strategist at Royal Bank of Scotland in London.

Euro-zone M3 money supply is expected to have risen 8.1% on the year in November, up from 8.0% growth in the previous month, according to forecasts by 16 economists.

European government bonds were higher Wednesday as technical buying added to support from an earlier rally by Treasurys.

FOREX: The euro opens hardly changed as investors continue to mull the consequences of the inversion of the U.S. Treasury yield curve.

David Simmonds, Global Head of Currency Research at RBS in London, said that if the curve inversion does last, it would be dollar positive in the near-term. That's because it results from the same Federal Reserve monetary policy tightening that has given the U.S. currency an interest-rate advantage against its major competitors.

Simmonds said that "if the usual ... lags apply" between the shape of the curve and the dollar's movement, "it suggests that euro/dollar is going lower" in coming months.

Simmonds' comment meshed with an email note from Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York. Chandler said that in the seven periods the yield curve has inverted since 1980, the dollar has lifted against the yen in five of them and has climbed versus the euro - or the Deutschemark prior to 1999 - in six of them.

However, in the longer term, a curve inversion could be dollar bearish, analysts say. Simmonds at RBS warned that if an inversion is accurate in predicting a future slowdown in U.S. growth, that could be a significant dollar bearish factor late in 2006.

The dollar was higher versus the yen and the U.K. pound but little changed against the euro Wednesday.

CALENDAR: Thursday, Dec 29: Euro Money Supply; US Energy

GMT Expected Previous
0900 GER Nov M3 Money Supply
0900 ITA Nov PPI
0900 GER Nov M3 Money Supply Figures
1015 GER ECB allocates main refi ops bids
1330 US Dec 24 Jobless Claims +4K -13K
1500 US Nov Conference Board Help-Wanted Index
1500 US Dec 17 DJ-BTM Business Barometer +0.5%
1500 US Nov Existing Home Sales -1.3% -2.7%
1530 US Dec 23 US Energy Dept Natural Gas Stocks
(in billion cubic feet) -157 -162
1530 US Dec 23 US Energy Dept Crude Oil Stocks
(in barrels) -0.5M +1.3M
1530 US Dec 23 US Energy Dept Distillate Stocks
(in barrels) -0.34M -2.8M
1530 US Dec 23 US Energy Dept Gasoline Stocks
(in barrels) -0.28M -0.3M
1600 US Dec Kansas City Fed Mfg Index +7
2130 US Dec 24 Money Supply
N/A UK Commodity price movements
N/A UK Mortgage Approvals

-By Dennis Baker; Dow Jones Newswires; [email protected]