* Euro falls broadly as bank stress tests loom
* Stocks zig-zag ahead of earnings season start
* Copper falls on China's drop in demand
By Manuela Badawy
NEW YORK, July 12 (Reuters) - The euro fell broadly on
Monday, as investors grew cautious on the health of European
banks ahead of results of stress tests on the sector, while
stocks struggled for direction ahead of the onset of the U.S.
corporate earnings season.
The second-quarter earnings season was looming large for
investors who are seeking a clearer picture of the economy's
prospects, as a fading recovery, persistently high unemployment
in the United States, Europe's debt troubles and commercial
real estate losses have kept concerns of a double-dip recession
alive.
Markets were also jittery about Europe's fiscal issues and
the health of its financial sector ahead of the stress tests on
the continent's banks -- including many regional banks where
markets suspect most of the sore spots lie -- as it seeks to
restore confidence in the sector.
China's release of data showwing a drop in demand for
copper for a third straight month drove down the price of
copper more than 2 percent and weighed on the price of mining
shares on both sides of the Atlantic. China is the world's top
metals consumer, and the drop in demand cast a shadow on the
demand outlook.
The euro fell against the dollar, pulling back from a
two-month high, with investors betting recent gains were too
far, too fast, while oil prices fell more than 1 percent as the
dollar strengthened and ahead of corporate earnings results.
"Earnings season is a risk. The weaker euro will help
internationally-exposed European companies, but not U.S.
companies like Caterpillar <CAT.N>," said Heino Ruland,
strategist at Ruland Research in Frankfurt. "So we could see a
divergence."
The Dow Jones industrial average <> edged up 4.31
points, or 0.04 percent, at 10,202.34. The Standard & Poor's
500 Index <.SPX> eased 0.99 points, or 0.09 percent, to
1,076.97. The Nasdaq Composite Index <> was off 0.97
points, or 0.04 percent, to 2,195.48.
The earnings season will kick off with Alcoa <AA.N> after
the market close on Monday, and results from Intel <INTC.O>, JP
Morgan <JPM.N>, Google <GOOG.O>, Bank of America <BAC.N>, GE
<GE.N> and Citi <C.N> will follow later in the week.
Thomson Reuters data shows earnings of S&P 500 firms are
expected to grow 27 percent in the second quarter from the
previous three months, after expanding at a rate of 58.3
percent in the January-March period.
So far, with 26 of 500 firms already reported, 69 percent
of earnings came in above expectations.
The S&P Materials index <.GSPM> slid 1.1 percent after the
Chinese on falling copper demand, sending Freeport McMoRan
Copper & Gold Inc <FCX.N> down 4.3 percent to $63.12.
The MSCI world equity index <.MIWD00000PUS> eased 0.18
percent.
In Europe, the FTSEurofirst 300 index <> eked out a
gain, rising 0.3 percent for a fifth straight day of gains.
Shares of BP <BP.L> surged 9.4 percent to their highest close
in a month, boosted by reports of asset disposals to help pay
for the oil major's Gulf of Mexico spill and hopes for a new
system to capture almost all the spewing oil.
EURO, COPPER FALL
The euro fell 0.52 percent to $1.2568 <EUR=>, pulling away
from last week's two-month high as concerns about the
effectiveness of stress tests on European banks prompted
investors to trim long positions in the single currency.
The stress tests are being performed on 91 European banks,
with results due on July 23, a major step as the European Union
seeks to restore confidence in the sector. []
"In the near term, the euro could suffer from any
disappointment triggered by the stress tests," said Gareth
Berry, a currency strategist at UBS AG.
China's trade surplus in June jumped on surprising strength
in exports, but copper imports fell by 17.3 percent to 328,231
tonnes. Copper <CMCU3> was traded at $6,641.75 a tonne from
$6,769 on Friday when it hit a near two-week high of $6,775.
Beijing is scheduled to release a slew of economic data for
June later this week, including economic growth, inflation and
industrial output, expected to shed light on the health of the
world's third-largest economy.
U.S. Treasuries were little changed ahead of the first of
this week's $69 billion worth of bond auctions. The Treasury
will auction $35 billion of three-year notes at 1 p.m. (1700
GMT), the first of three sales which also include 10-year notes
and 30-year bonds.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
10/32, with the yield at 3.0211 percent. The 2-year U.S.
Treasury note <US2YT=RR> was unchanged with the yield at 0.633
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
17/32, with the yield at 4.0101 percent.
Analysts also are keeping a close watch on the auctions as
the bond market remains relatively expensive after a
three-month rally that has pulled benchmark yields below 3.0
percent from more than 4.0 percent at the start of April.
U.S. crude oil <CLc1> fell 1.42 percent to $75 a barrel
ahead of corporate results.
(Additional reporting by Vivianne Rodrigues and Burton
Frierson in New York and Brian Gorman in London; Editing by
Leslie Adler)
