* Swiss franc hits record highs against euro, dollar
* US, European stocks fall after recent rally
* Italy sells govt bonds to modest demand, yields rise
(Updates with U.S. markets close)
By Walter Brandimarte
NEW YORK, Dec 30 (Reuters) - The dollar weakened broadly on
Thursday on expectations of low bond yields continuing in 2011,
while U.S. and European stocks gave back part of the recent
gains that had taken global equities near Sept. 2008 highs.
The Swiss franc soared to record highs against the dollar
and the euro as concerns about the European debt crisis
reinforced its safe-haven appeal among currency investors.
U.S. stocks dipped in spite of a solid batch of economic
data as investors avoided taking on more risk before the new
year. Still, the S&P 500 was headed for its best December in
nearly two decades and a MSCI index of global stocks remained
close to Sept. 2008 highs.
Japan's Nikkei stock futures <NKZ0> traded in Chicago were
little changed at 10,230.
"The common sense of the street is that we get pullback
after this Santa Claus rally and a very strong run up in the
S&P since August," said Peter Kenny, managing director at
Knight Equity Markets in Jersey City, New Jersey.
Kenny added, however, that he expects the pullback to come
in February instead. "I don't think it will be in early January
because everybody is expecting it."
Giuseppe-Guido Amato, strategist at Lang & Schwarz in
Germany, said that even as companies remain in good shape, "you
can't just buy and hold" after the recent rally.
"There are still the systemic risks of the euro zone
sovereign debt crisis," he said.
Highlighting such concerns, Italy, in its sale of 8.1
billion euros ($10.7 billion) of medium and long-term debt,
missed the top end of its targeted range for 8.5 billion euros
and had to pay higher yields to investors.
European sovereign debt concerns pushed the euro down to
1.2398 francs <EURCHF=EBS> on trading platform EBS after a
Swiss bank targeted an option barrier at 1.2400. It last traded
at 1.2429, down 0.6 percent.
The dollar was down 0.35 percent against a basket of major
currencies, according to the U.S. Dollar Index <.DXY>. The euro
gained 0.48 percent against the greenback to $1.3287.
The dollar has been weakening since a surprisingly strong
Treasury auction on Wednesday put pressure on government bond
yields. Treasuries yields were modestly higher on Thursday due
to stronger-than-expected economic data, but investors expect
them to remain under pressure in 2011 as the U.S. Federal
Reserve maintains its ultra-loose monetary policy.
Against the Swiss franc the dollar fell to 0.9356 francs
<CHF=EBS> on EBS as the euro/Swiss barrier gave way. It was
last at 0.9356, down 1.0 percent on the day.
"We continue to be Swiss franc bulls, expecting that its
status as a European alternative to the euro, a strong
sovereign position and relatively solid fundamentals will
continue to make it an attractive home for investors," said
Camilla Sutton, chief currency strategist at Scotia Capital in
Toronto.
Thinning liquidity ahead of the New Year's holiday likely
exaggerated price swings in currency markets, traders said.
STOCKS TREADING WATER
U.S. stocks traded flat to lower as the thin liquidity
discouraged investors from making big bets.
The Dow Jones industrial average <> finished down 15.67
points, or 0.14 percent, at 11,569.71, while the Standard &
Poor's 500 Index <.SPX> lost 1.90 points, or 0.15 percent, to
1,257.88. The Nasdaq Composite Index <> declined 3.95
points, or 0.15 percent, to 2,662.98.
That weak performance came despite positive economic data,
including a government report that showed new U.S. claims for
unemployment benefits dropped 34,000 to a seasonally adjusted
388,000, the lowest reading since early July 2008. For details,
see [].
Another report showed activity in the U.S. Midwest jumped
unexpectedly in December, with help from a gain in employment
and new orders. And pending sales of previously owned U.S.
homes rose faster than expected in November. []
[]
In Europe, the FTSEurofirst 300 <> index closed down
1.26 percent, its largest one-day retreat this month. Still,
the index is on track to post its biggest monthly gain since
March. Thursday was the last trading day of the year in several
European countries, including Germany, Spain and Italy.
The benchmark MSCI All-Country World Index <.MIWD00000PUS>
finished virtually flat, near Wednesday's close of 330.90,
which was the highest since Sept. 2008.
A weaker dollar pushed silver to new 30-year highs while
palladium neared its highest in almost ten years, but gold
prices <XAU=> fell 0.47 percent to $1,403.90 an ounce after the
positive U.S. economic data.
The data also reduced the safe-haven appeal of U.S.
government debt. The benchmark 10-year U.S. Treasury note
<US10YT=RR> was down 3/32 in price, with the yield at 3.366
percent.
Treasuries prices could be buoyed on Friday, however, by
traders positioning for new Federal Reserve purchases of bonds
next week.
(Additional reporting by Chuck Mikolajczak, Wanfeng Zhou,
and Karen Brettell in New York, Editing by Chizu Nomiyama)
