With record highs in sight, stocks face roadblocks

NEW YORK (Reuters) - If Wall Street needs to climb a wall of worry, it will have plenty of opportunity next week.

Major U.S. stock indexes will make another attempt at reaching all-time records, but the fitful pace that has dominated trading is likely to continue. Next Friday's unemployment report and the hefty spending cuts that look like they about to take effect will be at the forefront.

The importance of whether equities can reach and sustain those highs is more than Wall Street's usual fixation on numbers with psychological significance. Breaking through to uncharted territory is seen as a test of investors' faith in the rally.

"It's very significant," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

"The thinking is, there's just not enough there for an extended bull run," he said. "If we do break through (record highs), then maybe the charts and price action are telling us there's something better ahead."

Flare-ups in the euro zone's sovereign debt crisis and next Friday's report on the U.S. labor market could jostle the market, though U.S. job indicators have generally been trending in a positive direction.

Small- and mid-cap stocks hit lifetime highs in February. Now the Dow Jones industrial average <.dji> and the S&P 500 <.spx> are racing each other to the top. The Dow, made up of 30 stocks, is about 75 points - less than 1 percent - away from its record close of 14,164.53, which it hit on October 9, 2007. The broader S&P is still 3 percent away from its closing high of 1,565.15, also reached on October 9, 2007.

The advantage may be in the Dow's court. So far in 2013, it has gained 7.5 percent, beating the S&P 500 by about 1 percent.

THE RALLY AND THE REALITY CHECK

The Dow's relative strength owes much to its unique make-up and calculation, as well as to investors' recent preference for buying value stocks likely to generate steady reliable gains, rather than growth stocks.

But the more defensive stance illustrates how stock buyers are getting concerned about this year's rally. While investors don't want to miss out on gains, they're picking up companies that are less likely to decline as much as high-flying names - if a market correction comes.

The Russell Value Index <.rav> is up 7.6 percent for the year so far, outpacing the Russell Growth Index's <.rag> 5.7 percent rise. Within the realm of the S&P 500, the consumer staples sector led the market in February, gaining 3.1 percent.

There is some concern that growth-oriented names are being eclipsed by defensive bets, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

"This isn't a be-all and end-all sell signal by any means, but we would feel much more comfortable if some of the more aggressive areas, like technology and small caps, would start to gain some leadership here," Detrick said.

Signs that investors are becoming concerned about the rally's pace is evident in the options market, where the ratio of put activity to call activity has recently shifted in favor of puts, which represent expectations for a stock to fall.

"We are seeing some put hedging in the financials, building up for the past month," said Henry Schwartz, president of options analytics firm Trade Alert in New York.

The put-to-call ratio representing an aggregate of about 562 financial stocks is 1:1, when normally, calls should be outnumbering puts.

Investors have no shortage of reasons to crave the relative safety of blue chips and defensive stocks. Although markets have mostly looked past uncertainty over Washington's plans to cut the deficit, fiscal policy negotiations still pose a risk to equities.

The $85 billion in spending cuts set to begin on Friday is expected to slow economic growth this year if policymakers do not reach a new deal. Markets so far have held firm despite the wrangling in Washington, but tangible economic effects could pinch stock prices going forward.

The International Monetary Fund warned that full implementation of the cuts would probably take at least 0.5 percentage point off U.S. growth this year.

EASY MONEY AND TEPID HIRING

Investors will also take in a round of economic data at a time when concerns are percolating that the market is being pushed up less by fundamentals and more by loose monetary policy around the world.

The main economic event will be Friday's non-farm payrolls report for February. The U.S. economy is expected to have added 160,000 jobs last month, only a tad higher than in January, in a sign the labor market is healing at a slow pace. The U.S. unemployment rate is forecast to hold steady at 7.9 percent.

While lackluster data has been a catalyst in the past for stock market gains as investors bet it would ensure continued stimulus from the Federal Reserve, that sentiment may be wearing thin.

Markets stumbled last week following worries that the Fed might wind down its quantitative easing program sooner than expected.

"It shows the underpinning of the market is being driven at this point by monetary policy," Hellwig said.

With investors questioning what is behind the rally, it will make a run to record highs even more significant, Hellwig added.

"There's smart people that are in the bull camp and the bear camp and the muddle-through camp," Hellwig said. "The fact that you can statistically, using historical evidence, make a case for going higher, lower, or staying the same makes this number very important this time around."

(Wall St Week Ahead runs every Friday. Comments or questions on this column can be emailed to: leah.schnurr(at)thomsonreuters.com)

(Reporting by Leah Schnurr; Additional reporting by Doris Frankel in Chicago; Editing by Jan Paschal)

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Shares, euro rebound, Italy bond sale in focus

LONDON (Reuters) - Reassurance from the U.S. Federal Reserve about its stimulus program helped stabilize the euro and European shares on Wednesday, as Italy prepared to test the reaction to its inconclusive election in the bond market.

Italy will auction up to 6.5 billion euros of new 5- and 10-year bonds at around 1000 GMT after gridlocked elections reignited fears about the euro zone debt crisis.

"Markets have started to price in risks of ungovernability of the country in the coming months, with possible domino effects on the rest of the euro area," said Newedge economist Annalisa Piazza.

"Political instability is expected to prevail ...and even a grand coalition government would be seen only as a temporary option, probably not able to continue the so-much needed reforms process."

Having fallen sharply on Tuesday following the Italian stalemate, European shares <.fteu3> rebounded 0.4 percent as trading resumed with 0.8 percent rises in Milan's FTSE MIB <.ftmib> and Spain's IBEX <.ibex> the leading the gains.

The mood was helped after Federal Reserve Chairman Ben Bernanke defended the U.S. central bank's monetary stimulus on Tuesday, easing financial market worries over a possible early retreat from bond purchases.

The euro also regained ground, rising 0.2 percent to $1.3085 having hit a seven-week low of $1.3017 on Tuesday.

In the bond market Italian yields, which rise as prices fall, inched up again, while German government bonds , a favourite of risk-adverse investors, also added to this week's hefty gains.

"Italy remains the centre of attention and I can't see it getting any better," one trader said. "Supply will be the main focus and ... it could be a bit of a problem."

(Editing by Anna Willard)

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Bernanke to face Fed critics in testimony to Congress

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke faces the first of two days of congressional testimony that will subject the Fed's controversial bond-buying program to tough scrutiny and gauge his confidence in the resilience of the U.S. economy.

Coming just a week after the Fed's meeting minutes sent U.S. stocks reeling by suggesting the central bank could pull back its economic stimulus earlier than had been expected, and a day after another sharp stock market drop, investors are certain to hang on every word.

Beginning with the U.S. Senate Banking Committee on Tuesday, the scholarly Fed chief will be quizzed by some bitter critics of the aggressive steps he has championed to spur growth. On Wednesday, he will appear before the House Financial Services Committee.

"His opinion remains that there is still not enough growth, that high unemployment is a cyclical issue, that there is not enough inflation," economists at TD Securities in New York said in a note to clients. "He will keep the pedal to the metal deep into 2013."

The Fed chairman's prepared testimony is scheduled to be released at 10 a.m. (1500 GMT) on Tuesday, followed by a lengthy question-and-answer session. By tradition, he will issue the same statement on Wednesday before facing the House panel.

FIRST, DO NO HARM

Lawmakers in both chambers will seek his comment on the likely impact of $85 billion in across-the-board government spending cuts that are set to take effect on March 1.

Bernanke is likely to repeat his line that the indiscriminate axe they take to the budget will hurt the recovery, and argue that it would be better to cut the deficit over time and avoid the risk of a near-term fiscal shock.

Lawmakers will also question him about the Fed's bold bond- buying program, which has tripled the size of the central bank's balance sheet to $3 trillion since 2008.

The Fed, which cut overnight interest rates to near zero more than four years ago, is currently buying $85 billion a month in government and mortgage-backed bonds to keep longer- term borrowing costs low and spur the economy's recovery. The Fed has said it would continue to purchase bonds until it sees a substantial improvement in the outlook for the labor market.

That still appears a long way off. In January, the jobless rate ticked up a tenth of a percentage point to 7.9 percent.

Many Republicans have criticized the Fed's aggressive easing of monetary policy for risking inflation and asset bubbles, and for facilitating excessive government spending by keeping the nation's borrowing costs low.

Some of the same concerns have resonated within the central bank.

Minutes of the Fed's January 29-30 policy meeting, released last week, showed that a number of officials felt the potential risks posed by buying bonds could warrant tapering or ending the program before hiring picks up. However, several others argued there was a danger in halting it prematurely.

Financial markets are keen to find out where Bernanke stands. Expectations that he would offer reassuring words, coupled with fears that Europe's debt crisis could grow worse, led on Monday to the biggest drop in the yield on the benchmark 10-year U.S. Treasury note since November.

"You are probably going to hear a message that does not lean so heavily on the costs" of bond buying," said Michael Feroli, an economist with JPMorgan in New York.

(Reporting by Alister Bull; Editing by Tim Ahmann and Jan Paschal)

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Stock index futures point to flat to higher open

LONDON (Reuters) - Stock index futures pointed to a mixed open on Wall Street on Monday, with futures for the S&P 500 and Nasdaq 100 up 0.1 and 0.2 percent respectively by 0856 GMT, while those for Dow Jones were steady.

* The U.S. stock market closed higher on Friday, with the S&P 500 adding 13.18 points, or 0.88 percent, to 1,515.60 <.spx>, after comments from Fed officials allayed fears that the central bank would curtail stimulus measures.

* Prospects of continued stimulus also lifted Asian and European equity markets on Monday, with the EuroSTOXX 50 benchmark of euro zone blue chips up 0.7 percent <.stoxx50e>. However, uncertainty over the outcome of Italian elections, which close on Monday, kept a lid on the gains.

* With days left before $85 billion is slashed from U.S. government budgets, the White House on Sunday issued more dire warnings about the harm the cuts will do to Americans. But Republicans, who advocate budget cuts, said the warning was overplayed and called on President Barack Obama to apply what is known as the "sequester" in a more careful way, rather than slashing budgets across the board.

* A relatively light calendar features the Chicago Fed's national activity index for February at 1330 GMT, alongside earnings from Autodesk Inc and Lowe's Companies.

* Barnes & Noble Inc Chairman Leonard Riggio is considering a bid for the company's bookstore business, the Wall Street Journal reported on Sunday, citing people familiar with the situation.

* Disney's movie "Brave" won the Oscar on Sunday for Best Animated Feature.

* BlackRock Inc. , the world's largest money manager, has got approval from the U.S. securities regulator to list a copper-backed exchange-traded fund, potentially getting the jump on JPMorgan, whose listing of a similar product has been delayed by industry objections.

* Knight Capital Group , which recently agreed to be bought for $1.4 billion by Getco Holding Co, has struck a deal to sell its credit-brokerage unit to Stifel Financial Corp , according to a person familiar with the matter.

* Hewlett-Packard Chairman Ray Lane and fellow board members plan to meet with about 20 of the computer maker's big investors Monday in hopes of heading off a campaign to unseat Lane and two other directors, the Wall Street Journal reports.

* Office Depot Inc said late on Friday that following talks with the largest holder of its common stock, Starboard Value LP, it is extending the deadline for nominating candidates for its board at its annual meeting.

* Dick's Sporting Goods Inc shares could rise 23 percent within the next year if the largest publicly traded U.S. sporting goods retailer continues to boost profit at a mid-teens percentage rate, Barron's said.

(Reporting By Toni Vorobyova; Editing by Hugh Lawson)

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Investors face another Washington deadline

NEW YORK (Reuters) - Investors face another Washington-imposed deadline on government spending cuts next week, but it's not generating the same level of fear as two months ago when the "fiscal cliff" loomed large.

Investors in sectors most likely to be affected by the cuts, like defense, seem untroubled that the budget talks could send stocks tumbling.

Talks on the U.S. budget crisis began again this week leading up to the March 1 deadline for the so-called sequestration when $85 billion in automatic federal spending cuts are scheduled to take effect.

"It's at this point a political hot button in Washington but a very low level investor concern," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. The fight pits President Barack Obama and fellow Democrats against congressional Republicans.

Stocks rallied in early January after a compromise temporarily avoided the fiscal cliff, and the Standard & Poor's 500 index <.spx> has risen 6.3 percent since the start of the year.

But the benchmark index lost steam this week, posting its first week of losses since the start of the year. Minutes on Wednesday from the last Federal Reserve meeting, which suggested the central bank may slow or stop its stimulus policy sooner than expected, provided the catalyst.

National elections in Italy on Sunday and Monday could also add to investor concern. Most investors expect a government headed by Pier Luigi Bersani to win and continue with reforms to tackle Italy's debt problems. However, a resurgence by former leader Silvio Berlusconi has raised doubts.

"Europe has been in the last six months less of a topic for the stock market, but the problems haven't gone away. This may bring back investor attention to that," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

OPTIONS BULLS TARGET GAINS

The spending cuts, if they go ahead, could hit the defense industry particularly hard.

Yet in the options market, bulls were targeting gains in Lockheed Martin Corp , the Pentagon's biggest supplier.

Calls on the stock far outpaced puts, suggesting that many investors anticipate the stock to move higher. Overall options volume on the stock was 2.8 times the daily average with 17,000 calls and 3,360 puts traded, according to options analytics firm Trade Alert.

"The upside call buying in Lockheed solidifies the idea that option investors are not pricing in a lot of downside risk in most defense stocks from the likely impact of sequestration," said Jared Woodard, a founder of research and advisory firm condoroptions.com in Forest, Virginia.

The stock ended up 0.6 percent at $88.12 on Friday.

If lawmakers fail to reach an agreement on reducing the U.S. budget deficit in the next few days, a sequester would include significant cuts in defense spending. Companies such as General Dynamics Corp and Smith & Wesson Holding Corp could be affected.

General Dynamics Corp shares rose 1.2 percent to $67.32 and Smith & Wesson added 4.6 percent to $9.18 on Friday.

EYES ON GDP DATA, APPLE

The latest data on fourth-quarter U.S. gross domestic product is expected on Thursday, and some analysts predict an upward revision following trade data that showed America's deficit shrank in December to its narrowest in nearly three years.

U.S. GDP unexpectedly contracted in the fourth quarter, according to an earlier government estimate, but analysts said there was no reason for panic, given that consumer spending and business investment picked up.

Investors will be looking for any hints of changes in the Fed's policy of monetary easing when Fed Chairman Ben Bernake speaks before congressional committees on Tuesday and Wednesday.

Shares of Apple will be watched closely next week when the company's annual stockholders' meeting is held.

On Friday, a U.S. judge handed outspoken hedge fund manager David Einhorn a victory in his battle with the iPhone maker, blocking the company from moving forward with a shareholder vote on a controversial proposal to limit the company's ability to issue preferred stock.

(Additional reporting by Doris Frankel; Editing by Kenneth Barry)

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European shares, euro rebound from steep losses

LONDON (Reuters) - European shares and the euro on bounced off their previous session's steep falls early on Friday despite unease over European economic forecasts, ECB crisis loan repayment data and Italian elections at the weekend.

The German Ifo business climate indicator for February rose to 107.4 from 104.2, helping to lift the mood after Thursday's disappointing PMI data rattled markets.

It will be followed by new European Commission economic forecasts at 1000 GMT which should show whether there are any signs of recovery outside of Germany. They will also show how far off-track the likes of Spain, France and Portugal are from meeting their deficit targets this year.

European shares on the FTSEurofirst 300 <.fteu3> rose 0.7 percent to recoup some of Thursday's 1.5 percent slump, albeit remaining on course for a third weekly loss in four.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were up 0.7, 1.1 and 0.6 percent respectively, helping lift MSCI's world share index <.miwd00000pus> 0.2 percent as markets recovered from 2013 lows.

"The markets took a heavy dive earlier this week, but they're showing signs of a partial recovery," said Berkeley Futures associate director Richard Griffiths.

"The fact that traders are still buying on the dips shows that they're hoping that the global economic recovery will continue, although it will take time."

In the currency market, the euro extended gains after the German data, climbing 0.3 percent to just above $1.32 following its one percent drop this week.

The dollar <.dxy> was broadly lower, as weak data helped dampen talk of the Federal Reserve winding down its support after its minutes this week showed a minority of its members were questioning the impact of its measures.

Other than the economy, the focus will be on the weekend election in Italy. There is raft of Italian data due out including inflation and consumer confidence numbers for January.

The European Central Bank will also publish details at around 1100 GMT on how much banks plan to repay of its second batch of crisis loans when they get the first chance to return the money next week.

German Bund futures hovered around four-week highs in early trading at 143.40. Italian elections run the risk of producing a fragmented parliament which could hamper the future government's reform efforts. Bunds are seen holding firm at least until the results come out.

"(The) extension of (the) risk averse environment depends on key event risk, particularly (this) weekend's Italian elections," Credit Agricole said in a note.

(Additional reporting by Thuy Ong in Sydney and Florence Tan and Rujun Shen in Singapore; editing by John Mair and Philippa Fletcher)

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European shares steady awaiting further growth signals

LONDON (Reuters) - European share markets were little changed on Wednesday, awaiting further signs of improving global economic recovery after a big rise in the previous session fuelled by encouraging German data.

The FTSE Eurofirst <.fteu3> index of top European shares was down 0.1 percent in early trading, having gained 1.1 percent on Tuesday, its best day for three weeks <.fteu3>.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were all close to flat. <.eu/>

"I see no reason why we can't consolidate the gains and possibly move higher," said Michael Hewson, an analyst at CMC Markets.

Global share markets surged on Tuesday after forecast-beating German sentiment data pointed to an accelerating recovery in Europe's largest economy.

The data comes ahead of more important euro zone flash Purchasing Managers Indexes on Thursday and a German business sentiment survey on Friday that could show whether the region's recovery is taking hold.

The rising hopes of recovery have been supported on Wall Street by a surge in merger activity that has sent U.S. benchmark shares indexes close to record highs. <.n>.

In Asia, share markets outside Japan are at 18-month highs <.miapj0000pus>, as the relatively stronger growth outlook compared with Europe and the United States has drawn in foreign investors.

The rise in equities has weighed on assets perceived as safe havens, with German Bund futures down 25 ticks in early trade to 142.57, though news that Spain may be about to issue a U.S. dollar bond supported sentiment.

In the currency markets the euro rose 0.2 percent to $1.3413 but sterling fell to its lowest in nearly 16 months against a trade-weighted basket of currencies.

Currency traders have their eyes on central banks and the minutes of policy meetings at the Bank of England and the U.S. Federal Reserve that are due to be published later in the day.

The Bank of England minutes at 0930 GMT may reiterate a tolerance for higher inflation or greater disagreement among policymakers over the value of restarting the bank's asset purchase program.

Commodities markets mostly followed equities higher, with spot gold inching up 0.2 percent to $1,605.90 an ounce but stuck near a six-month low.

London copper edged up 0.2 percent to $8,067.75 a metric ton, off Tuesday's three-week lows but Brent crude was little changed at $117.47 a barrel.

(Additional reporting by Masayuki Kitano in Singapore and Thuy Ong in Sydney; Editing by Eric Meijer)

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Shares edge higher, euro flat ahead German data

LONDON (Reuters) - European shares edged higher and the euro was steady on Tuesday ahead of German economic sentiment data, while the yen rose after Japanese ministers played down talk the Bank of Japan might buy foreign bonds to loosen credit.

Following last week's GDP figures showing that the euro zone saw a weaker end to 2012 than expected, forecasters see a pick-up in Germany's ZEW survey of investors and analysts at 1000 GMT, which may point to rebound in the bloc's biggest economy.

European stock markets, which have lost around 1.5 percent since the end of January, bounced backed from Monday's weak session in early trading, with the FTSEurofirst 300 <.fteu3> up 0.4 percent led by 0.7 and 0.5 percent gains on Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi>.

Underscoring the drag Europe's economic sluggishness is creating, new figures showed car firms had their weakest January since the records of the Association of European Carmakers began in 1990, with sales dropping 8.5 percent.

Berkeley Futures associate director Richard Griffiths said the Euro STOXX 50 and German DAX <.gdaxi> equity index could fall by between 3 and 4 percent over the coming month as economic weakness acts to cap investor sentiment.

"Any inroads to the upside will be hard to come by," he said. "We're in for a period of consolidation, with the risk more to the downside."

In the bond market, benchmark German Bunds edged up as demand for low-risk debt was also supported by concerns over the possibility of an inconclusive outcome to the Italian parliamentary election on Sunday and Monday, though gains were capped ahead of the German sentiment data.

The euro was little changed against the dollar at $1.3345 by 0900 GMT after European Central Bank President Mario Draghi reiterated on Monday that the bank would continue to monitor whether the currency's recent strength was likely to push inflation below its comfort zone.

The yen rose after Japanese ministers played down talk of foreign-bond buying by the country's central bank, a day after Prime Minister Shinzo Abe said such a policy could be one option for monetary easing.

Finance Minister Taro Aso told a news conference that he was not considering foreign-bond purchases as a part of monetary easing, while Economy Minister Akira Amari said Abe's comments on Monday simply referred to policy options countries have in general.

Their comments sent the dollar down to 93.39 yen. The euro eased 0.6 percent to 124.70 yen, well below its peak since April 2010 of 127.71 yen touched on February 6.

(Reporting by Marc Jones; Editing by Alastair Macdonald)

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Euro, dollar gain after G20, stocks weaker

LONDON (Reuters) - The euro and the dollar gained against the yen on Monday after the G20 decided not to criticize Japan for its expansionary policies, but Europe's weak growth outlook and the approach of Italian elections capped the moves.

Financial leaders from the world's 20 biggest economies promised in their final statement after a weekend meeting not to devalue their currencies to boost exports, in a bid to defuse talk of currency wars among major nations.

The euro gained 0.15 percent to 125.20 yen, edging up toward a 34-month high of 127.71 yen hit earlier this month, while the dollar rose 0.5 percent to 93.99 yen, closer to its highest since May 2010 of 94.46 hit on February 11.

"Future yen direction will continue to be driven by domestic monetary policy from the Bank of Japan and improving international investor confidence, which are both driving the yen weaker," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.

With the G20 meeting over, the focus in European markets is switching to the release of euro area Purchasing Managers' Indexes for February and German sentiment indices due later in the week, and the upcoming general elections in Italy.

Analysts expect the euro area flash PMI indices, which point to economic activity around six months out, to show growth stabilizing rather than a clear end to the current recession across the region.

The FTSEurofirst 300 index <.fteu3> of top European shares opened down 0.1 percent at 1,159.87 points, with Germany's DAX <.gdaxi>, the UK's FTSE <.ftse> and France's CAC-40 <.fchi> flat to slightly weaker. <.l><.eu/>

Earlier, the effect of the G20 statement and further announcements from Japan's Prime Minister Shinzo Abe indicating a renewed drive to stimulate the economy lifted the Nikkei stock index <.n225> by 2.1 percent, near to its highest level since September 2008.

Meanwhile U.S. stock futures were barely changed and are expected to stay little changed as Wall Street will be closed on Monday for the Presidents' Day holiday. <.n/>

In the commodity markets, copper fell 0.7 percent to $8,150 a tonne as traders played catch up after a week-long holiday in China last week, with worries about the euro zone economy weighing on sentiment.

U.S. crude fell 34 cents to $95.50 a barrel but Brent inched up six cents $117.70.

Gold rebounded by 0.3 percent from a six-month low to be $1,614 an ounce as jewelers in China returned to the physical market after the Lunar New Year holiday.

(Reporting by Richard Hubbard. Editing by Giles Elgood)

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After decent rally, perhaps time for a pause

NEW YORK (Reuters) - Stocks could struggle to extend their seven-week winning streak as the quarterly earnings period draws to a close and the market bumps into strong technical resistance.

Many analysts say the market could spend the next few weeks consolidating gains that have lifted the benchmark Standard & Poor's 500 <.spx> by 6.6 percent since the start of the year.

The S&P 500 ended up 0.1 percent for the week, recovering from a late sell-off on Friday after a Bloomberg report about slow February sales at Wal-Mart triggered a slide in the retailer's shares. It was the index's seventh week of gains.

Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

"I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback," Zaro said. The S&P 500 could shave 3 to 5 percent between now and early April, he said.

Fourth-quarter earnings have mostly beaten expectations. Year-over-year profit growth for S&P 500 companies is now estimated at 5.6 percent, up from a January 1 forecast for 2.9 percent growth, and 70 percent of companies are exceeding analyst profit expectations, above the 62 percent long-term average, according to Thomson Reuters data.

On Thursday, Wal-Mart, the world's largest retailer, is due to report results, unofficially closing out the earnings period. Investors will be keen to see its quarterly numbers, especially after the Friday's news report that rattled investors.

The S&P 500 has gained 4.3 percent since Alcoa kicked off the earnings season on January 8.

The approaching March 1 deadline for across-the-board federal budget cuts unless Congress reaches a compromise adds another reason for caution, especially with recent economic data indicating the recovery remains bumpy.

Manufacturing output fell 0.4 percent last month, the Federal Reserve said on Friday, but production in November and December was much stronger than previously thought.

TESTING RESISTANCE

The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. But the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.

As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania. "We just don't have the volume or the catalyst right now" to go above those levels, he said.

At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15- and 30-day moving averages.

Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati, Ohio. The S&P 500's 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed Friday at 1,519.

Recent M&A activity, including news this week of a merger between American Airlines and US Airways Group , helped provide some strength for the market this week and optimism that more deals may be on the way.

In the coming days, the market will focus on minutes from the latest Federal Reserve meeting, due to be released on Wednesday, which could provide support if they suggest the Fed will remain on its current course of aggressive monetary easing.

The Fed minutes released in January spooked markets a bit when they revealed that some Fed officials thought it would be appropriate to consider ending asset purchases later in 2013. U.S. Treasury yields rose on that news, though market worries about a near-term end to quantitative easing have since faded.

Among other companies expected to report earnings next week are Nordstrom , Hewlett-Packard and Marriott International

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

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G20 defuses talk of "currency war", no accord on debt

MOSCOW (Reuters) - The Group of 20 nations declared on Saturday there would be no 'currency war' and deferred plans to set new debt-cutting targets in an indication of concern about the fragile state of the world economy.

Japan's expansive policies, which have driven down the yen, escaped criticism in a statement agreed in Moscow by financial policymakers from the G20, which groups developed and emerging markets and accounts for 90 percent of the world economy.

After late-night talks, finance ministers and central bankers agreed on wording closer than expected to a joint statement issued last Tuesday by the Group of Seven rich nations backing market-determined exchange rates.

A draft communique seen by delegates on Friday had steered clear of the G7's call for fiscal and monetary policy not to be targeted at exchange rates but the final version included a G20 commitment to refrain from competitive devaluations and stated monetary policy would be directed at price stability and growth.

"The language has been strengthened since our discussions last night," Canadian Finance Minister Jim Flaherty told reporters. "It's stronger than it was, but it was quite clear last night that everyone around the table wants to avoid any sort of currency disputes."

The communique, seen by Reuters ahead of publication, did not single out Japan for aggressive monetary and fiscal policies that have seen the yen drop 20 percent.

The statement reflected a substantial, but not complete, endorsement of Tuesday's statement by the G7 nations - the United States, Japan, Britain, Canada, France, Germany and Italy.

"We all agreed on the fact that we refuse to enter any currency war," French Finance Minister Pierre Moscovici told reporters.

NO FISCAL TARGETS

The text also contained a commitment to credible medium-term fiscal strategy, but stopped short of setting specific goals.

A debt-cutting pact struck in Toronto in 2010 will expire this year if leaders fail to agree to extend it at a G20 summit of leaders in St Petersburg in September.

"Advanced economies will develop credible medium-term fiscal strategies ... by the St. Petersburg summit," the communique said.

The United States, which has resorted to massive monetary stimulus and higher government borrowing to drive growth and cut jobless queues, blocked a push from Europe to commit to reducing budget deficits.

Russian Finance Minister Anton Siluanov said the G20 had failed to reach agreement on medium-term budget deficit levels.

"We expect by April countries will have made progress on reaching a balanced approach to establishing new budget indicators on both, deficit and the level of government debt," Siluanov said.

Russia, this year's chair of the G20, also expressed concern about ultra-loose policies that it and other big emerging economies say could store up trouble for later.

Siluanov said a rebalancing of global growth required more than an adjustment of exchange rates.

"Structural reforms in all countries, either with a positive or negative balance of payments, should play a bigger role," he said, adding that spillover effects of unconventional monetary policy, conducted by central banks in some countries, should be closely monitored.

The G20 put together a huge financial backstop to halt a market meltdown in 2009 but has failed to reach those heights since. At successive meetings, Germany has pressed the United States and others to do more to tackle their debts. Washington in turn has urged Berlin to do more to increase demand.

On currencies, the G20 text reiterated its commitment last November, to move towards "exchange rate flexibility to reflect underlying fundamentals and avoid persistent exchange rate misalignments".

"The G7 made a very clear statement this week. I think you'll see the G20 echo what was said, and say that currencies should not be used as a tool of competitive devaluation," Britain's finance minister, George Osborne, said in Moscow.

"Countries shouldn't make the mistake of the past of using currencies as a tool of economic warfare."

(Additional reporting by Randall Palmer, Lesley Wroughton, Tetsushi Kajimoto, Jan Strupczewski, Lidia Kelly and Jason Bush. Writing by Douglas Busvine. Editing by Timothy Heritage/Mike Peacock)

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Yen firms as G20 eyed, weak Europe dampens mood

LONDON (Reuters) - The yen firmed on Friday as investors braced for the likelihood of more conflicting comments on currencies from the G20 meeting, while a revival in worries about global economic growth weighed on shares and commodities.

The G20 forum in Moscow is in the spotlight as officials are expected to discuss whether the ultra loose monetary polices of the United States, Japan, Britain and the euro zone depart from the group's commitment to market-driven exchange rates.

The dollar shed 0.5 percent to 92.46 yen, dropping as far as a one-week low of 92.25 yen while the euro fell to a two-week low of 123.10 yen.

The Japanese currency gained some support when a Russian official said drafting the final communique from the G20 meeting was proving difficult, but the text would not single out Japan for criticism.

"There is an issue of 'who started the fire?' You can say that Japan has getting really aggressive but then they might say, well what have Americans done, what about the British and so on," said William De Vijlder, chief investment officer at BNP Paribas Investment Partners.

The yen was also underpinned by expectations that Japanese Prime Minister Shinzo Abe is close to selecting his nominee for Bank of Japan governor. A decision could come in the next few days, sources close to the process told Reuters [ID:nL4N0BF1LS]

Shares were broadly flat with the pan-European FTSEurofirst 300 index <.fteu3> little changed at 1,163.34 points following dismal gross domestic product data from across the euro zone on Thursday.

The surprisingly sharp contraction in the region's economy during the final three months of 2012 has undermined hopes of an early recovery from recession, but also boosted talk that the European Central Bank may have to ease policy further.

Frankfurt's DAX <.gdaxi>, Paris's CAC-40 <.fchi> and London's FTSE <.ftse> were around 0.1 to 0.3 percent lower.

The weaker demand outlook implied by the GDP data sent Brent crude under $118 a barrel and on course for its first weekly loss since mid-January.

Front-month Brent futures LCOc1 fell 30 cents to $117.70 a barrel, while Gold dropped to a six-week low of $1,629.89 an ounce, and was headed for its biggest weekly drop since December.

(Reporting by Richard Hubbard; editing by David Stamp)

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Euro falls as German, French economies disappoint

LONDON (Reuters) - The euro dropped and European shares fell on Thursday as growth data from the region's two largest economies came in weaker than forecast, throwing a first quarter recovery for the bloc into doubt.

The German economy, Europe's largest, contracted by 0.6 percent in the final quarter of 2012, marking its worst performance since the global financial crisis was raging in 2009.

Worryingly for Berlin, it was export performance - the motor of its economy - that did most of the damage. France's 0.3 percent fall was also a touch worse than expectations.

The figures suggest the euro zone could remain slumped in recession in the first quarter of this year and pushed down the euro 0.5 percent to a session low $1.3382.

"This is major data, so it's dampening sentiment," said Anita Paluch, sales trader at Gekko Capital Markets.

"It is kind of disappointing that Germany, which had shown so much resilience, is now showing signs of suffering from the debt crisis."

Stock markets also edged lower although the impact was not so marked. The pan-European ESTOXX 50 index <.stoxx50e> was down 0.1 percent by 0815 GMT with London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> all down by a similar amount.

German bonds were steady, stabilizing after a fall in the previous session as demand for traditional safe-haven assets returned.

Benchmark Bund futures were 3 ticks higher on the day at 142.08, with analysts targeting a further rise if the remaining GDP data for countries such as Italy (0900 GMT), and the euro zone as a whole (1000 GMT), also come in weak.

The pain is not confined to Europe. Japan, under some pressure over its aggressive monetary and fiscal policies which are driving down the yen, came up with an unwanted riposte earlier on Thursday - its GDP shrank 0.1 percent in the fourth quarter, leaving it in recession and crushing expectations of a modest return to growth.

The Bank of Japan also kept monetary policy steady and upgraded its economic assessment, as recent falls in the yen and signs of a pick-up in global growth in recent months give it some breathing space after expanding stimulus just a month ago.

Markets in China and Taiwan remain shut for the Lunar New Year holiday but Hong Kong resumed trading on Thursday.

(Reporting by Marc Jones; Editing by Peter Graff)

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Dollar, euro ease against yen on G7 policy doubts

LONDON (Reuters) - The yen rose against the dollar and the euro on Wednesday as investors reconsidered a G7 statement on exchange rates aimed at soothing concerns of a currency war but instead provoked a fresh bout of volatility.

The G7 reaffirmed its commitment to market-determined exchange rates and said that fiscal and monetary policies must not be directed at devaluing currencies in its statement which was interpreted as condoning the recent weakness in the yen.

However, an official from the group later said Tuesday's statement was meant to signal concerns about excessive yen moves, prompting a vicious reversal in the currency.

"It appears there is a lack of consensus at the G7 level in tackling the unintended weakening of currencies, due to the adoption of expansionary domestic monetary policies," analysts at Barclays said in a note clients.

In early European trading the dollar and the euro had both fallen by 0.3 percent against the yen to 93.20 yen and 125.42 yen respectively.

At the center of the debate is Japan, where Prime Minister Shinzo Abe's government has made it clear that it will push for aggressive policies to beat deflation through drastic monetary expansion. Anticipation of a bolder Bank of Japan policy has sent the yen down nearly 20 percent against the dollar since November.

Dealers said the market was likely to trade cautiously ahead of the outcome of a Bank of Japan meeting ending on Thursday and before a meeting of the Group of 20 finance ministers and central bankers in Moscow on Friday and Saturday.

Markets are also awaiting the Bank of England's quarterly inflation report which should show whether there's any realistic chance of further asset purchases in coming months which would add to pressure on sterling.

The euro zone will publish industrial production data for December at 1000 GMT, seen as likely to confirm that output in final quarter was very weak.

The data comes out a day ahead of flash estimates of fourth quarter GDP for the whole euro area which is forecast to show growth contracted by around 0.4 percent in the final three months of the year - the steepest quarter-on-quarter decline since the first quarter of 2009.

Ahead of the data Europe's share markets were little changed with the FTSE Eurofirst 300 index <.fteu3> of top companies opening flat but near the top of a six-day trading range, with the focus on corporate earnings reports.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were between 0.1 percent higher and 0.2 percent down.

Debt markets were also little changed as investors await the results of an auction of long-term Italian debt which is seen as a test of demand before elections later this month.

Italian debt has been under pressure in recent weeks as a comeback in the opinion polls by former Prime Minister Silvio Berlusconi's party has raised the prospect of a fragmented parliament that could hamper the next government's reform efforts.

Germany also plans to sell 5 billion euros of two-year bonds.

(Editing by Anna Willard)

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Yen near lows vs dollar, Asian shares ease in subdued trade

TOKYO (Reuters) - The yen hovered near its lows against the dollar and Tokyo stocks jumped closer to a 33-month high on Tuesday after markets took comments from a U.S. official as approval for Japan to pursue anti-deflation policies that weaken the yen.

U.S. Treasury Undersecretary Lael Brainard said on Monday the United States supports Japanese efforts to end deflation, but she noted that the G7 has long been committed to exchange rates determined by market forces, "except in rare circumstances where excess volatility or disorderly movements might warrant cooperation.

"Her (Brainard's) comments gave confidence to the market. It was surprising, and was taken as the Obama administration giving a green light to 'Abenomics'," said Takuya Takahashi, a market analyst at Daiwa Securities.

Japan has faced some overseas criticism that it is intentionally trying to weaken the yen with monetary easing, but talk of a so-called currency war was dialled back ahead of a Group of 20 meeting in Moscow on Friday and Saturday.

G20 officials said on Monday the Group of Seven nations are considering a statement this week reaffirming their commitment to "market-determined" exchange rates.

European Central Bank council member Jens Weidmann also said the euro was not overvalued at current levels.

The dollar slipped 0.3 percent to 94.185 yen after marking its highest level since May 2010 of 94.465 on Monday. The euro eased 0.3 percent to 126.12 yen after rising more than 2 percent on Monday. It hit its highest since April 2010 of 127.71 yen last week.

"I think the yen's weakening is a function of (playing)catch-up," and not Japan resorting to deliberate devaluation of its currency, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. "It's the market's way of saying: 'We're convinced there is a movement afoot to reinflate Japan.'"

The yen is pressured by anticipation that Prime Minister Shinzo Abe will endorse a far more dovish Bank of Japan regime when the current leadership's term ends next month, although the BOJ is expected to refrain from taking fresh easing steps when it meets this week.

Share trading was subdued with many regional bourses shut for holidays. Encouraging trade data from China late last week was lending support to sentiment but non-Japan markets lacked momentum as investors awaited key events such as the U.S. president's State of the Union address for trading cues.

European markets are seen inching lower, with the Euro STOXX 50 index futures down 0.1 percent. A 0.2 percent drop in U.S. stock futures also suggested a soft Wall Street start. <.l><.eu><.n/>

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> fell 0.1 percent, with Australian shares closing flat ahead of corporate earnings due this week.

The weaker yen in turn hoisted the Nikkei stock average <.n225> to close 1.9 percent higher on improving earnings prospects for exporters. <.t/>

Trading resumed in Japan and South Korea but markets in Singapore, Hong Kong, mainland China, Malaysia and Taiwan remained closed.

STATE OF UNION ADDRESS

Currency and equities markets were also looking ahead to President Barack Obama's State of the Union address later on Tuesday night, for any signs of a deal to avert automatic spending cuts due to take effect March 1.

"We believe that the G20's take on currency wars, Mr. Obama's upcoming state of the union address, and data on the current condition of the U.S. economy should help markets assess where the global recovery stands and where we are heading," Barclays Capital said in a research report.

U.S. and Chinese data last week lifted the tech-focused Nasdaq Composite Index <.ixic> to a 12-year closing high and the Standard & Poor's 500 Index <.spx> to a five-year peak on Friday.

Financial markets showed a muted reaction to the news that North Korea has conducted a nuclear test.

"The test was not something that makes your heart pound as much as a pressing situation between Iran and Israel," said Kaname Gokon, research manager at brokerage Okato Shoji, referring to the threat of possible military action to prevent Iran from developing nuclear weapons.

U.S. crude futures edged down 0.1 percent to $96.90 a barrel while Brent steadied around $118.

Spot gold stayed near a one-month low.

(Additional reporting by Ayai Tomisawa, Lisa Twaronite and Osamu Tsukimori in Tokyo; Editing by Chris Gallagher)

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Square scandal highlights growing pains at tech start-ups

SAN FRANCISCO (Reuters) - When Square Chief Operating Officer Keith Rabois left his job last month, citing legal threats from a young colleague with whom he had a two-year relationship, he threw a spotlight on the risks associated with the freewheeling startup culture that many entrepreneurs cherish.

Startups often thrive on a lack of rules and boundaries. But experts say that as they make the transition from a handful of people in a room to sizeable businesses, the hazards of operating without manual - including lawsuits, reputational hits, and waning employee morale - grow exponentially.

Longtime employees sometimes chafe at the arrival of human resources professionals, codes of conduct and other policies that they fear will step on the company's culture. Yet entrepreneurs and start-up investors say they ultimately have little choice.

Take Facebook Inc, which displayed murals of naked women, some riding dogs, in the Palo Alto offices it leased as a small company in 2005. As proud as some of the early employees were of them — one was painted by the then-girlfriend of Facebook impresario and serial entrepreneur Sean Parker — they got painted over shortly after venture-capital firm Accel Partners invested in the company. Facebook had no immediate comment.

About a year into the life of online-ad tracking startup DoubleVerify, an employee gave a presentation about how advertising fraud takes place. Many in the room got a rude awakening when a slide popped up showing an example of an ad where it shouldn't be: next to a particularly raunchy image on a pornography site.

"That was the first time we realized, ‘We gotta get a little more institutionalized," recalls founder Oren Netzer. Today, the company has policies concerning naked images. The same presentation would use a less controversial example, or obscure anything racy.

Alcohol is another dicey topic. "We used to have these new employee hazing ceremonies," said Dheeraj Pandey, chief executive of virtualization company Nutanix, largely involving knocking back tequila shots with chili peppers. But once the company hit about 100 employees, some new hires pushed back and he started considering the potential for liability.

"It just faded away about four, five months ago," he said about the hazing. Potential concerns run the gamut from some employees feeling excluded if they don't drink to incidents that sometimes accompany drunken behavior.

At 250-person social-media management company Hootsuite, "I somewhat infamously have said I never wanted to work at a company with an HR department," says founder Ryan Holmes.

"That's coming back to bite me a little bit now."

MISSION STATEMENTS, HR FLUFF

A year ago, Holmes made his executive assistant the director of human resources. That type of promote-from-within strategy for HR is commonplace, startups say.

A few months into her role, the new HR director told Holmes the company needed a mission statement. "I said, ‘Oh my God, this is HR fluff,'" Holmes remembers. But shortly afterward, when he overheard new hires discussing beliefs he thought were out of step with Hootsuite's ethos — he says he cannot recall the details — he realized she was right.

But Holmes says he is resisting conforming on other levels. Hootsuite employees attend teambuilding trips, including a recent stay at a hot-springs resort. That is the type of event big companies cut out — Google Inc halted its famous all-employee trips in 2009 - often because of the potential for various kinds of legal liability and cost.

Holmes says he might have to rethink his overnight trips if the company ever goes public, but for now, he plans to keep going. "We think it's very valuable," he says.

At Nutanix, Pandey decided last summer's annual whitewater rafting trip on the Sacramento River would be the last. "We used to go through some rough rapids, and had a couple of close shaves," he said. "A couple of the guys aren't good swimmers."

Part of the philosophy is that young companies want to encourage a "think different" attitude, employees say.

"Start-ups by design want to differentiate themselves from the large companies like the HPs that have very thick employee handbooks," said Brian Samson, chief executive of HR for Startups, referring to computer company Hewlett Packard Co.

Start-ups often deal with the inevitable by aiming for a careful, light-footed approach to new policies.

"I've tried to make sure we don't talk about rules," says Evan Wittenberg, HR head at cloud-content firm Box. "The language around this really matters. These are guidelines."

Still, there are tensions as the company, which now employs around 700 and is considered a likely prospect for a 2013 initial public offering, grows. Cecilia Wong, people manager at Box, cites the daylong orientation process for new employees.

"I've had some managers ask, ‘Why's it a full day? On my first day, it was just an hour, then I could hit the ground running,'" she says. She believes the full day is important for explaining the company culture, business and logistics issues.

The consequences of neglecting HR policy and other big-company practices can be dire.

Rabois said he resigned from his post after an ex-boyfriend that he recommended for a job at Square threatened to sue for sexual harassment. A Square spokesman declined to say what kind of HR policies, if any, the company has in place, and he declined to comment on any issue related to the relationship that led to Rabois' resignation. Square had about 30 employees when Rabois joined and now has about 400.

Many large organizations - not just companies, but nonprofits and government agencies - have firm policies about intra-office romances, and often prohibit them if one party has any kind of supervisory authority over the other.

"You can be open to liability if the relationship goes sour, and you have a person in a position of power over the other person," said San Francisco employment attorney Therese Lawless. "Any actions of that person in power can be deemed to be retaliatory."

In addition, it can create a morale issue if other employees believe the more junior employee in an ongoing relationship is receiving favorable treatment, she said.

(Reporting By Sarah McBride; Editing by Jonathan Weber and Leslie Gevirtz)

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Stocks end higher for sixth straight week, tech leads

NEW YORK (Reuters) - The Nasdaq composite stock index closed at a 12-year high and the S&P 500 index at a five-year high, boosted by gains in technology shares and stronger overseas trade figures.

The S&P 500 also posted a sixth straight week of gains for the first time since August.

The technology sector led the day's gains, with the S&P 500 technology index <.splrct> up 1.0 percent. Gains in professional network platform LinkedIn Corp and AOL Inc after they reported quarterly results helped the sector.

Shares of LinkedIn jumped 21.3 percent to $150.48 after the social networking site announced strong quarterly profits and gave a bullish forecast for the year.

AOL Inc shares rose 7.4 percent to $33.72 after the online company reported higher quarterly profit, boosted by a 13 percent rise in advertising sales.

Data showed Chinese exports grew more than expected, a positive sign for the global economy. The U.S. trade deficit narrowed in December, suggesting the U.S. economy likely grew in the fourth quarter instead of contracting slightly as originally reported by the U.S. government.

"That may have sent a ray of optimism," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Trading volume on Friday was below average for the week as a blizzard swept into the northeastern United States.

The U.S. stock market has posted strong gains since the start of the year, with the S&P 500 up 6.4 percent since December 31. The advance has slowed in recent days, with fourth-quarter earnings winding down and few incentives to continue the rally on the horizon.

"I think we're in the middle of a trading range and I'd put plus or minus 5.0 percent around it. Fundamental factors are best described as neutral," Dickson said.

The Dow Jones industrial average <.dji> ended up 48.92 points, or 0.35 percent, at 13,992.97. The Standard & Poor's 500 Index <.spx> was up 8.54 points, or 0.57 percent, at 1,517.93. The Nasdaq Composite Index <.ixic> was up 28.74 points, or 0.91 percent, at 3,193.87, its highest closing level since November 2000.

For the week, the Dow was down 0.1 percent, the S&P 500 was up 0.3 percent and the Nasdaq up 0.5 percent.

Shares of Dell closed at $13.63, up 0.7 percent, after briefly trading above a buyout offering price of $13.65 during the session.

Dell's largest independent shareholder, Southeastern Asset Management, said it plans to oppose the buyout of the personal computer maker, setting up a battle for founder Michael Dell.

Signs of economic strength overseas buoyed sentiment on Wall Street. Chinese exports grew more than expected in January, while imports climbed 28.8 percent, highlighting robust domestic demand. German data showed a 2012 surplus that was the nation's second highest in more than 60 years, an indication of the underlying strength of Europe's biggest economy.

Separately, U.S. economic data showed the trade deficit shrank in December to $38.5 billion, its narrowest in nearly three years, indicating the economy did much better in the fourth quarter than initially estimated.

Earnings have mostly come in stronger than expected since the start of the reporting period. Fourth-quarter earnings for S&P 500 companies now are estimated up 5.2 percent versus a year ago, according to Thomson Reuters data. That contrasts with a 1.9 percent growth forecast at the start of the earnings season.

Molina Healthcare Inc surged 10.4 percent to $31.88 as the biggest boost to the index after posting fourth-quarter earnings.

The CBOE Volatility index <.vix>, Wall Street's so-called fear gauge, was down 3.6 percent at 13.02. The gauge, a key measure of market expectations of short-term volatility, generally moves inversely to the S&P 500.

"I'm watching the 14 level closely" on the CBOE Volatility index, said Bryan Sapp, senior trading analyst at Schaeffer's Investment Research. "The break below it at the beginning of the year signaled the sharp rally in January, and a rally back above it could be a sign to exercise some caution."

Volume was roughly 5.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by nearly 2 to 1 and on the Nasdaq by almost 5 to 3.

(Additional reporting by Angela Moon; Editing by Bernadette Baum, Nick Zieminski, Kenneth Barry and Andrew Hay)

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Euro near two-week low, shares up on rekindled rate cut hopes

LONDON (Reuters) - The euro hovered near a two-week low and European shares rose on Friday after the European Central Bank rekindled expectations that it could again take the knife to interest rates.

Strong Chinese trade data also helped lift optimism about global growth prospects, boosting oil, copper and Asian shares, although investors booking profits before next week's Chinese new year holidays limited gains.

ECB President Mario Draghi levered the door to a rate cut back open on Thursday, saying the bank would monitor the potential downward pressure of a strengthening euro on already near-target inflation.

European share markets opened higher on the hopes lower borrowing rates would also reverse some of the 8 percent trade-weighted rise in the euro over the last six months that has began to weigh on exporters.

"We're in a 'risk-on' mode and continental Europe should continue to do well in this environment," said Cyrille Urfer, who heads up asset allocation at Swiss bank Gonet.

The pan-European FTSEurofirst 300 <.fteu3> was up 0.5 percent by 0815 GMT, though it remained on course for its second weekly loss in a row.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were up 0.6, 0.4 and 0.3 percent respectively and U.S. stock futures pointed to a steady Wall Street start. <.l><.eu><.n/>

While Draghi said the euro's recent surge was a sign of a return of confidence, he said: "We certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned."

The comments went further than many analysts had expected and as European trading gathered pace the euro steadied at $1.3398 after earlier dropping to $1.33705, the lowest since January 25.

China said its exports grew 25 percent in January from a year ago, the strongest showing since April 2011 and well ahead of market expectations for a 17 percent rise, while imports also beat forecasts, surging 28.8 percent on the year.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> added 0.3 percent and Australian shares rallied 0.7 percent to 34-month highs.

"China's economic conditions are improving and the trade data confirms the continuation of a recovery trend. Not just the trade data but retail, production and investment flows clearly show that the economy bottomed out in the third quarter last year," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

In the bond market, benchmark German Bund futures were little changed in early trade as Draghi's cautious tone on the euro zone's economy underpinned demand for low risk assets.

Investors focused on Irish bonds after benchmark 10-year yields slid to their lowest since before the start of the subprime crisis in 2007 on news Dublin had clinched a bank debt deal that will cut its borrowing needs over the next decade.

(Additional reporting by Sudip Kar-Gupta; editing by Philippa Fletcher)

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Global shares, euro edge up ahead of ECB meeting

London (Reuters) - The euro and shares inched higher on Thursday, as investors awaited the European Central Bank's policy meeting later in the day and President Mario Draghi's views on the region's growth outlook.

Testimony from the new head of the Bank of England, bond auctions by France and Spain, earnings reports from a host of major European companies and the start of a two-day European Union summit provided more reasons for investors to be cautious.

The euro edged up 0.3 percent to $1.3570, holding above this week's low of $1.3458 plumbed on Tuesday but well shy of a 15-month peak of $1.3711 set last Friday.

The common currency has now soared 20 percent against Japan's yen in just three months, risen 8 percent on sterling and 7 percent on the dollar, increasing tensions among policymakers across the recession-hit region.

The gains have put the spotlight firmly on ECB president Draghi's 1330 GMT news conference, which follows the bank's meeting where interest rates are expected to be left unchanged.

"Draghi has to be very careful because it's a very sensitive time in currency markets, and investors will be looking for any hint of the ECB's thinking on this issue," said Ned Rumpeltin, head of G10 FX strategy at Standard Chartered Bank.

"It is probably the wisest path for him to avoid the debate on the currency at this point in time."

At his news conference last month, Draghi read out a G20 statement on exchange rates in which members pledged to avoid competitive devaluations. With another meeting of the group due next week, it's likely Draghi will keep to this line.

BRITAIN VIEW

Ahead of the ECB meeting, the man about to take the helm at the Bank of England, Canadian Mark Carney, faces his first public grilling about how he would revive Britain's stagnant economy.

Carney, the first foreigner to run the bank in its 318-year history, faces a three-hour question-and-answer session that could also signal how he will bring his banking expertise to bear on the UK's crisis-hit banks.

The Bank of England also holds its monetary policy meeting later. No policy changes are expected at the BoE's monthly meeting, with an announcement due at 1200 GMT.

The UK central bank is unlikely to change interest rates though to signal an unchanged monetary policy stance it needs to announce fresh purchases of bonds to maintain its stock at the current level of 375 billion sterling.

Ten-year gilt yields were 1 basis point lower at 2.09 percent ahead of the testimony and the bank's announcement.

German Bund futures reflected the cautious mood across all markets, edging up 5 ticks to 142.61, with attention on reaction to a Spanish sale of 4.5 billion euros of new debt.

Increasing calls for Spain's prime minister Mariano Rajoy to resign over a corruption scandal may have hit investor demand for the bonds, which saw higher yields at the sale.

Ten-year Spanish government bond yields were 3.7 basis points higher at 5.48 percent, while two-year borrowing costs rose 1.9 bps to 2.89 percent.

SHARES STABLE

European shares were mostly little changed, stabilizing after sharp losses in the previous session, as mixed corporate results and rising economic concerns in the euro zone added to the nerves ahead of the ECB meeting.

The FTSEurofirst 300 index <.fteu3> of top European shares was slightly higher in early trade, despite disappointing results from French pharmaceutical group Sanofi , telecoms firm Alcatel Lucent and Credit Suisse . <.eu/>

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were all around 0.1 percent higher.

"The medium and long-term positive trend is still intact, although on the short term, we're turning 'neutral'; indexes are very close to key support levels," said Aurel BGC chartist Gerard Sagnier.

Commodities markets were all trading within tight ranges, with investors' attention firmly fixed on the currency implications of anything the ECB's Draghi might say.

The euro often dictates gold's movements in particular, and ahead of the meeting it had inched up to about $1,680 an ounce.

"Gold is very much dependent on the outcome of the ECB. I don't think today they will give us a clear indication whether the euro is indeed overvalued," said Joyce Liu, an investment analyst at Phillip Futures in Singapore.

"If they try to weaken the euro because the economy hasn't bottomed out, then in that case, it's possible gold may go up a bit."

Brent crude was steady in a tight range around $117 per barrel ahead of the meeting.

Brent has gained over the last three weeks as positive data suggested the global economy had turned a corner, which augurs well for fuel demand, while supply worries stemming from tensions in the Middle East have also supported prices.

(Additional reporting by Francesco Canepa; Editing by Will Waterman)

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Yen hit near three-year low as new BOJ governor eyed

LONDON (Reuters) - The yen fell close to a three-year low on Wednesday on expectations that a new Bank of Japan governor could ease policy, while the euro was steady and European shares edged up ahead of a central bank meeting.

BOJ Governor Masaaki Shirakawa has said he will step down on March 19, opening the way for a successor supporting the kind of expansionary policies the government favours.

The dollar touched 94.075 yen to its highest since May 2010 before profit taking saw it drop back to 93.76 yen, while the euro also rose as high as 127.71 yen, its strongest since April 2010, before it also eased.

Against the dollar, the euro dipped to $1.3546 but was within this week's range of $1.3450 - $1.3710.

New Japanese Prime Minister Shinzo Abe's support for aggressive easing does not seem to caused an outcry from other countries although there have been sporadic complaints from Germany and South Korea.

This makes yen selling comfortable, said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

"The G20 finance ministers meeting next week is unlikely to discuss currencies much. The market is likely to test further downside on the yen in the near future," Uchida said.

European shares edged up and the euro was steady ahead of Thursday's European Central Bank policy meeting after recovering from falls on Monday due to a flare up of political uncertainty in Spain and Italy. The ECB is expected to keep interest rates on hold.

London's FTSE 100 <.ftse> was up 0.5 percent, Paris's CAC-40 <.fchi> was up 0.3 percent and Frankfurt's DAX <.gdaxi> was 0.2 percent higher at 0900 GMT, leaving the pan-European FTSEurofirst 300 <.fteu3> up 0.5 percent at 1160.05.

Asian shares and industrial commodities and oil, now above $116 a barrel, consolidated recent gains that came on signs of global economic recovery.

The slide in the yen bolstered Japanese equities to their highest since October 2008 while expectations of more monetary easing pushed two-year Japanese government bond yields down to a nine-year low of 0.045 percent.

In the European bond market, benchmark German Bund futures edged up before a sale of five-year German debt that is expected to find strong demand due to a recent rise in yields and political uncertainty in Spain and Italy.

Corruption allegations in Spain have put Prime Minister Mariano Rajoy under pressure and a scandal at one of its oldest banks has led to an increasingly uncertain outcome in Italian elections later in February.

"There are fairly ominous signs (in the periphery). I know they (Italian and Spanish bonds) had a good day yesterday, but there's Spanish supply coming up," one trader said.

(Editing by Anna Willard)

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