Asian share markets look set for another indecisive session on Wednesday as investors booked profits on a range of once-crowded positions, sending the dollar and Wall Street lower, while lifting the euro, bonds and gold.
News that U.S. budget negotiators had reached a two-year deal to avoid another government shutdown should be a relief to markets globally, but perhaps not enough to brighten the year-end blues.
The Dow Jones industrial average lost 0.33 percent, while the S&P 500 Index dropped 0.32 percent. The pan-European FTSEurofirst 300 index fell 0.74 percent.
Dealers said many of the moves were due to hedge fundsunwinding what had been popular trades in short yen, short bonds, short gold, long dollars and long stocks.
Uncertainty about U.S. stimulus served as a convenient excuse with the jury still out on whether the Federal Reserve will start scaling back its bond buying next week.
"Our global strategy team now believe the Fed will proceed with a modest taper," said analysts at ANZ, though they put the probability of such a shift at no more than 55 percent.
"If the Fed does not proceed in December, we don't think it will be long after and we would expect (Chairman) Bernanke to provide more detail on a tapering framework/timetable at his post-meeting statement press debrief next week."
In any case it seems investors have made peace with the idea the Fed will taper soon, if not next week then by March, and that the economy will be able to withstand the move.
The central bank is also succeeding in convincing the market that tapering is not tightening and an actual hike in rates is a very distant prospect.
It was especially notable that yields on 10-year U.S. Treasury paper had dropped back to 2.80 percent having spiked as high as 2.93 percent in the immediate aftermath of Friday's payrolls data.
Eurodollar and Fed fund futures are not fully priced for a first rate rise until the end of 2015. The drop in U.S. yields also pulled the rug out from under the dollar, sending it lower across the board.
The impact was magnified against the euro as short-term rates in the zone had shifted higher when the European Central Bank sounded a lot less dovish than markets expected.
As a result the spread between U.S. and German two-year yields has shrunk 10 basis points so far this month, making the common currency more attractive.
The euro was holding firm at $1.3760 on Wednesday, having touched a six-week peak of $1.3795. Dealers said speculative buyers now had a hungry eye on the October peak at $1.3833 wagering that a break would unleash a wave of stop-loss buying that could lift the euro a lot higher.
The euro reached five-year peaks on the yen around 142.15 before easing off just a little to 141.45. The dollar lapsed to 102.84 yen having again failed to clear resistance around 103.40.
In commodity markets, gold rose about 2 percent on Tuesday to a three-week high, boosted by technical buying and short-covering. The spot price of bullion was up at $1,262.01 an ounce, off last week's trough at $1,211.44.
U.S. crude rose as traders mulled news of progress toward the opening of a major pipeline that will transport oil from storage centres in the U.S. Midwest to refineries in the Gulf.
The news presaged further drawdowns in overall U.S. crude oil inventories for a second straight week and lifted NYMEX crude a further $11 cents to $98.62 a barrel.
At the same time, the prospect of increased supply of Brent crude narrowed the spread between the two oil contracts to a month-low. Brent crude for January delivery was 11 cents firmer at $109.50 a barrel.