MORNING BID EUROPE-EU summit spotlight turns to Russia

by Reuters
Friday, 18 December 2015 08:15 GMT

* A look at the day ahead from European Economics and Politics Editor Mark John and Nigel Stephenson, specialist editor, EMEA markets. The views expressed are their own.

LONDON, Dec 18 (Reuters) - European leaders as expected gave the thumbs-down last night to British Prime Minister David Cameron's plan to restrict benefits for EU migrant workers but did give him space to walk out of late-night Brussels talks saying there was a "pathway" to a deal in February.

France's Francois Hollande also let slip that a mid-2016 date for the UK's referendum on EU membership was in discussion -- swiftly denied by Downing Street. On the other main issue of the summit, there was broad agreement to fast-track plans to create an EU border guard.

Russia-related themes will dominate today's talks. Italian Prime Minister Matteo Renzi has demanded that the leaders discuss a deal between Russia's dominant gas producer Gazprom and its European partners on the Nord Stream-2 project boosting shipments from Russia to Germany, but undermining Italy's goals of forging a southern gas hub.

While that will no doubt allow Renzi to let off some steam, it should not stop agreement on the renewal of EU sanctions on Russia over the Ukraine conflict later in the day.

Spanish voters go to the polls on Sunday and just about the only thing that is certain at this stage is that no party will be in a position to govern alone for the first time since the end of the Franco dictatorship in the 1970s.

That is a symptom of the wider fracturing of support for Europe's mainstream parties since the 2008/09 economic crisis but also an indictment of the levels of corruption and ineptness in Spain's political elite. The ruling centre-right PP of Mariano Rajoy will likely end up with the most votes but whoever ends up in power depends on the level of support for the other three main parties in the contest - the opposition Socialists, the hard-left Podemos and liberal upstart Ciudadanos. Coalition negotiations will be tough and lengthy. At this stage a left-wing alliance similar to that in neighbouring Portugal cannot be ruled out.

MARKETS European shares opened lower, following Asian shares after Wall Street retreated on worries about global growth reflected in falling commodity prices. That called a halt to a three-day rally. Stocks had risen on Thursday after the Fed rate rise, which was broadly seen as a vote of confidence in the economy. One consequence of the Fed hike that is not going to help the rest of the world is the stronger dollar. The U.S. currency is pulling back a bit on Friday (as it has after most other recent turns of the cycle), particularly against the yen after the Bank of Japan tweaked its stimulus programme. Where the dollar goes from here is a key question. U.S. Treasury yields are falling, especially at the long end, suggesting investors are not persuaded the Fed will raise rates as much as policymakers have forecast.

Upcoming events/data/themes for market reports on Friday:

* French PPI up 0.1 pct m/m

* Euro zone current account 0900 GMT

* U.S. Markit flash svcs/comp PMI

* U.S. KC Fed index 1600 GMT

* Fitch ratings reviews on Egypt and Serbia

* Brazil inflation

* Angolan forex reserves

(editing by John Stonestreet)

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