Trading cautious after Greek deal delay

08.00 GMT: Markets lacked conviction at the beginning of the European trading day as the failure to secure the latest bail-out for Greece and fresh warnings about the US fiscal cliff kept assets in a tight range.

The euro was the early standout faller, down 0.6 per cent against the US currency at USD 1.2746, after talks between European finance ministers and the IMF on a payment of up to ?44bn for Greece ended without agreement. The talks had been expected to sign off on a deal but disagreement remained about how to reduce interest rates on Greek debt, and another meeting was called for Monday.

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The dollar was also up against the currencies of its main trading partners. The dollar index rose 0.4 per cent to 81.19.

A warning from Ben Bernanke, Federal Reserve chairman, that uncertainty about the looming fiscal cliff of automatic spending cuts and tax rises was dragging down the US economy added to the caution.

Prices of 10-year German government bonds, which have proved a haven from the eurozone crisis, rose. The yield, which moves in the opposite direction to the underlying price, fell 2 basis points to 1.40 per cent, having risen to a two-week high on Tuesday.

European equities fell at the start of the session after two days of gains. The FTSE Eurofirst 300 was down 0.2 per cent at 1,092.35 as trading got under way in Europe.

Futures trading suggested shares in New York would open slightly lower, reversing earlier gains during the Asian session.

The broader FTSE All-World equity index was down just 0.07 per cent at 213.04, with losses limited by gains in Asia, helped by data showing housing starts in the US rose to a four-year high in October.

The Asia-Pacific index added 0.1 per cent 234.86, with Japanese stocks continuing to benefit from ongoing yen weakness.

Market gains were limited as investors remained concerned over the looming US fiscal cliff. Mr Bernanke said the situation was already hurting the US economy and urged political leaders to find a rapid solution.

"Uncertainty about how the fiscal cliff, the raising of the debt limit and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions," Mr Bernanke said.

On Wall Street, the S&P 500 closed up less than 0.1 per cent. The Dow Jones Industrial Average, which includes Hewlett-Packard among its constituents, closed 0.1 per cent lower. HP at one point plunged more than 13 per cent to a 12-year low after it said it would take an $8.8bn hit on its controversial acquisition of Autonomy, the UK software group.

The yen was trading at its lowest level in more than seven months as Japan's exports fell for a fifth month, stoking speculation the central bank will add stimulus measures to boost the economy. The Japanese currency hit a low of Y81.91 against the US dollar from Y81.67 late in New York. It was trading at Y82.06 against the dollar at the beginning of the European session and at Y104.70 per euro from Y104.77.

Oil prices remained largely unchanged as diplomatic efforts to end the week-long conflict between Israel and Gaza militants intensified. Brent crude, which earlier this week hit its highest level in two months, was up 0.05 per cent at USD 109.88 a barrel.

Gold fell as much as 0.4 per cent to USD 1,720.85 an ounce in Asian trading.

Yields on 10-year US Treasuries remained unchanged at 1.66 per cent, having risen 5 basis points on Tuesday following Mr Bernanke's warning.

Additional reporting by Song Jung-a in Seoul.