GLOBAL MARKETS-Stocks slip on 'fiscal cliff,' Europe debt worry

Ellen Freilich

* U.S. stocks slip on concerns about fiscal restraint

* Italy and Germany both enjoy strong debt sales

* FOMC minutes expected to lean toward monetary easing

NEW YORK, Nov 14 (Reuters) - Stock markets retreated on

Wednesday and a small bid for safety helped safe-haven U.S.

Treasuries erase some losses as investors waited for progress in

approving aid for Greece and in averting potential U.S. fiscal

constraint in early 2013.

Strong earnings reported by technology bellwether Cisco

Systems Inc. and two retail chains buoyed the U.S.

stock market in early trading, but selling picked up later in

the session.

"Again today, the market started off hoping for an

optimistic tone out of Washington on the "fiscal cliff" issue,

which spurred a move higher. But then, we got nothing and gains

basically fizzled out. We are probably going to have many more

days like this," said Randy Frederick, managing director of

trading and derivatives at Charles Schwab's Center for Financial


The Dow Jones industrial average was down 73.06

points, or 0.57 percent, at 12,683.12. The Standard & Poor's 500

Index was down 6.44 points, or 0.47 percent, at 1,368.09.

The Nasdaq Composite Index was down 10.52 points, or

0.36 percent, at 2,873.37.

Some analysts said stocks retreated more on a lack of buying

than on a new selling wave. They said investors were wary of the

impact that tax hikes and severe spending cuts would have on the

U.S. economy if President Barack Obama and Congress do not agree

on a plan to avoid the so-called fiscal cliff.

President Obama pressed for his proposal to have the wealthy

pay more in taxes as a way to tame the federal deficit, taking a

hard line in his opening bid before he begins fiscal talks with

U.S. lawmakers later in the week.

"We should not hold the middle class hostage while we debate

tax cuts for the wealthy," Obama said in his first press

conference since winning re-election on Nov. 6.

Brent oil prices rose more than 1 percent toward $110 a

barrel on Wednesday, snapping a two-day slide as Israel launched

a major offensive against Palestinian militants in Gaza,

exacerbating concerns about Middle East tensions.

Hamas's military chief was killed when his car was hit by an

Israeli air strike, the Palestinian Islamist group said, as

multiple Israeli attacks rocked the Gaza Strip.

An Israeli official said the attack on Hamas's top commander

was not the end of the assault on the coastal territory and more

strikes would follow.

"There are some ticking time bombs in the Middle East right

now and the Israeli air strikes on Gaza have brought the

tensions in the region back into focus for the oil market," said

Todd Gross, founder of fund management company Hudson Capital

Group LLC in New York.

Tensions are high in the region as the Syrian conflict drags

into its twentieth month. Western sanctions targeting the

Iranian nuclear program have also slashed oil exports from the


Brent December crude jumped up $1.49 to $109.75 a

barrel by 1:04 p.m. EST (1804 GMT), back above the 100-day

moving average of $109.50 and having swung from $107.80 to


U.S. December crude was up 82 cents to $86.20 a

barrel, just off the session high of $86.61.

Markets shrugged off news that U.S. retail sales fell in

October for the first time in three months as Hurricane Sandy

interrupted consumer spending momentum early in the fourth


Other data pointed to muted inflation, with wholesale prices

falling in October for the first time since May, giving the U.S.

Federal Reserve latitude to maintain its easy monetary policy

stance it hopes will nurse the economy back to health.

Minutes from the Fed's October policy meeting will be

released around 2:15 p.m. EST (1915 GMT) on Wednesday.

Ten-year Treasury notes, down 5/32 in price

earlier, erased that loss and were unchanged on the day in early

afternoon trade, yielding 1.60 percent. The yield on Tuesday

touched 1.57 percent, which was the lowest in 10 weeks.

Concerns in Europe as the International Monetary Fund and

the European Union failed to agree on long-term budget goals for

Greece also kept markets on edge, despite the growing likelihood

the country would receive the aid payments due this year


But in the foreign exchange markets, the euro was on track

to post its largest daily rise in two weeks against the U.S.

dollar on Wednesday, after five losing sessions, on expectations

Greece might receive another round of financial aid soon.

The yen, on the other hand, fell sharply against the dollar

and euro after Japanese Prime Minister Yoshihiko Noda said he

was ready to dissolve the lower house of parliament later this

week and hold a snap election next month.

The euro was also supported by comments from European Union

Economic and Monetary Affairs Commissioner Olli Rehn who

effectively endorsed Spain's austerity measures to cut its

deficit in 2012 and 2013, although steps for 2014 fell short of

what was expected by the group's finance ministers.

Against the yen, the dollar rose more than 1.0 percent to

80.18 yen. The euro climbed 1.4 percent to 102.18 yen

and rose 0.3 percent against the dollar to 1.2741

. The dollar index was flat at 81.086, having hit a

two-month high of 81.241 on Tuesday.

"This morning's economic reports paint a picture of a slow

and struggling U.S. recovery that will require continued

stimulus from the Federal Reserve," said Kathy Lien, managing

director of FX strategy at BK Asset Management in New York.

Investors are looking ahead to minutes from the Federal

Reserve's October policy meeting, to be released on Wednesday

afternoon, for clues on whether the central bank intends

to buy more Treasuries once its "Operation Twist" stimulus

program expires at the end of December.

The MSCI world equity index fell 0.55

percent to 320.25. Markets across Europe fell, but Asian markets

recovered from seven-week lows.

In Europe investors were unable to shake off concerns about

a rekindling of the debt crisis, sending the FTSEurofirst 300

index of top European shares down 1 percent to 1,088.43

points, erasing Tuesday's 0.4 percent rise.

London's FTSE 100, Frankfurt's DAX and

Paris's CAC-40 were lower.

The concerns over Greece, as well as lingering uncertainty

over whether Spain will seek a bailout and the prospect of slow

economic growth across the 17-member euro zone boosted demand at

a German debt auction.

Triple-A rated Germany sold 4.3 billion euros ($5.5

billion)of two-year bonds that paid no interest, meaning Berlin

was able to borrow for free because investors prize the

country's strong fiscal position and highly liquid debt market.

Italy's borrowing costs also fell at a 3.5 billion euro sale

of new three-year government bonds, which completed its funding

needs for the year.

Traders continued to watch developments in Europe and the

United States and were also wary about the ramifications of a

political transition in China due to be announced on Thursday.

The new government's attitude to supporting growth, which has

been slowing all year, will be closely watched as China is the

world's top consumer of many commodities.

Three-month copper on the London Metal Exchange was

down 0.4 percent at $7,646 a tonne, while gold rose 0.27

percent to $1,724.51 an ounce, still below a 3-week peak of

around $1,738 struck on Friday.