DJI - NEW YORK, Dec 24 (Reuters) - U.S. stocks edged lower on Monday as caution over the potential for volatility driven by worries about the U.S. "fiscal cliff" dampened enthusiasm at the start of a seasonally strong period for equities.
Investors are betting Congress will reach a deal to avert most of the austerity measures due to come into force at the start of next year. That has led to the best year for stocks since the post-financial crisis rebound. But those gains may be quickly reversed if a deal is not reached soon.
The S&P 500 index posted its biggest drop in more than a month on Friday as a Republican plan to avoid the cliff - $600 billion in tax hikes and spending cuts that could tip the U.S. economy into recession - failed to gain traction on Thursday night.
Sharp moves like that highlight how headlines from Washington can whipsaw markets, especially during the thinly traded period over the Christmas holiday.
Still, with the S&P 500 up 0.7 percent in December and on course for its strongest month since September, some analysts are predicting that stocks will find their footing during a market seasonality known as the "Santa Claus rally."
"Right now we've seen some very constructive action in the market so I think that bodes well for this being a positive seasonal 'Santa' period over the coming seven days," said Ari Wald, a technical analyst at The PrinceRidge Group.
He noted an all-time high in the NYSE advance-decline line, which compares advancing and declining stocks, as indication of strong participation in the rally off November lows.
"Pull-backs are buying opportunities," said Wald. "There has been really great participation on this move, a lot of small- and mid-cap stocks behaving well, pushing out to the upside; we're seeing some good leadership from offensive sectors of the market as well."
A high ratio of advancing stocks to declining issues shows there is broad participation across the equity market.
The Santa seasonality covers the last five trading days of the year and the first two of the new year. Since 1928, the S&P 500 has averaged a gain of 1.8 percent during this period and risen 79 percent of the time, according to data from PrinceRidge.
The Dow Jones industrial average dropped 51.76 points, or 0.39 percent, to 13,139.08. The Standard & Poor's 500 Index fell 3.49 points, or 0.24 percent, to 1,426.66. The Nasdaq Composite Index lost 8.41 points, or 0.28 percent, to 3,012.60.
The S&P 500 is up more than 13 percent for the year, having recovered nearly all the losses suffered in the wake of the U.S. election. The yearly gain would be the best since 2009.
Some U.S. lawmakers expressed concern on Sunday the country would go over the cliff, as some Republicans charged that was President Barack Obama's goal. Talks are stalled with Obama and House of Representatives Speaker John Boehner out of Washington for the holidays.
"It does seem like we are continuing through the same drift of the same thing we’ve had the past couple of weeks - 'cliff' talk," said Nick Scheumann, wealth partner at Hefty Wealth Partners in Auburn, Indiana.
"You can’t trade on what you don’t know and we truly don’t know what they are going to do," he said.
Congress is expected to return to Washington next Thursday as President Barack Obama returns from a trip to Hawaii. As the deadline draws closer, a 'stop-gap' deal appears to be the most likely outcome of any talks.
Trading volume was muted, with U.S. equity markets closing at 1 p.m. (1800 GMT) ahead of the Christmas Day holiday on Tuesday.
U.S. retailers may not see a sales surge from this weekend as ho-hum discounts and fears about imminent tax hikes and cuts in government spending give Americans fewer reasons to open their wallets in the last few days before Christmas.
NYMEX - NEW YORK, Dec 24 (Reuters) - U.S. crude futures edged lower on Monday in thin, pre-holiday trade as oil prices came under pressure from concerns about the lack of a U.S. budget agreement to avert tax hikes and spending cuts that could slow the economy and curb demand for petroleum.
CBOT Soyoil - Dec 24 (Reuters) - Soybean futures on the Chicago Board of Trade rose for a second trading day Monday in a holiday-shortened session, rebounding from last week's one-month low on technical buying and short-covering, traders said.
- U.S. markets will be closed on Tuesday in observance of the Christmas holiday, with electronic and open-outcry trade set to resume Wednesday at 9:30 a.m.
- USDA delayed the release of its weekly report on U.S. grain export inspections until Wednesday.
- Cash values for soybeans were mostly unchanged at the U.S. Gulf and in the Midwest interior ahead of the holiday. Farmers have delayed sales after CBOT corn futures slumped to a six-month low and soy to a one-month low last week.
- China's Shanghai and Dalian commodity futures exchanges will temporarily raise trading margins for all contracts from Dec. 28 ahead of a three-day New Year holiday. All margin requirements will return to normal levels after the holiday if the contracts do not hit circuit breakers on Jan. 4 when trading resumes.
- Large speculators expanded their net long position in CBOT soybeans to 93,168 lots in the week ended Dec. 18, the largest net long in five weeks, weekly data from the U.S. CFTC showed Friday.
FCPO - KUALA LUMPUR, Dec 24 (Reuters) - Malaysian palm oil futures climbed to a near one-month high on Monday as investors pinned hopes on next year's tight supply of competing soyoil shifting food demand to the tropical oil.
Record palm oil stocks in Malaysia, the world's No.2 producer, and slowing global demand has weighed on the market that has fallen 23 percent this year.
Palm oil has widened its discount to soyoil, potentially drawing in more demand from big Asian consumers like India next year as soy-exporting South American faces tighter supply from adverse weather.
"For Q1 2013 we anticipate soybean supply to be tight albeit China cancelling, so that deficit can only be covered by palm oil," said a trader with a local commodities brokerage.
"South America must produce and if they fail, then attention will turn to palm oil," the trader added.
The benchmark March contract on the Bursa Malaysia Derivatives Exchange rose 1 percent to close at 2,431 ringgit ($794) per tonne. Prices earlier climbed to 2,437 ringgit per tonne, the highest level since Nov. 27.
Total traded volumes stood at 18,637 lots of 25 tonnes each, much lower than the usual 25,000 lots ahead of Christmas holidays.
Seasonally slowing output and a growing biodiesel demand from Europe could help prop up palm oil prices in the first quarter of next year.
"From a fundamental point of view, palm should be supported by yield getting thinner and also emerging demand not only from the usual suspects, but Europe as well," said Standard Chartered analyst Abah Ofon in Singapore.
"On one hand European refiners are looking to buy crude palm oil because of the good discount between gasoil. That's making crude palm oil attractive as a feedstock for biodiesel," Ofon added.
Brent crude fell for a third day on Monday, trading below $109 a barrel, as uncertainty over the ability of the United States to resolve a budget crisis before a year-end deadline stoked concerns about demand growth in the world's top oil consumer.
In other competing vegetable oil markets, U.S. soyoil for January delivery fell 0.1 percent in late Asian trade after earlier gains on bargain hunting as prices slid on China's record cancellation.
Last Friday, China cancelled 540,000 tonnes of U.S. soybeans --the biggest cancellation by the world's top importer of the oilseed in at least 14 years -- as it expects to book cheaper supplies from Brazil next year.
Regional Equities - BANGKOK, Dec 25 (Reuters) - Vietnam's main share index rose for a second day to a three-month high on Tuesday, led higher by financial stocks, while Thailand's SET index eked out slim gains as domestic institutions led buyers.
In a rangebound session, Vietnam ended at 401.34, the highest since Sept. 17, and Thailand was up 0.14 percent by 0922 GMT. The Thai index has risen 34.3 percent so far this year, Southeast Asia's best performer.
The Thai bourse expects a number of companies to list on the main SET bourse and the smaller Market for Alternative Investment next year, worth about 120 billion baht ($3.92 billion) in initial public offerings (IPOs), president Charamporn Jotikasthira said.
The two bourses saw about 113 billion baht worth of IPOs in 2012, he said.
Among actively traded stocks on Tuesday, Vietnam Joint Stock Commercial Bank for Industry and Trade gained 3.7 percent in trading volume of 3.2 times the monthly average, while Thai telecoms group Shin Corp Pcl rose 0.7 percent.
Singapore , Malaysia , Indonesia and the Philippines were closed on Tuesday for the Christmas holiday, reopening on Wednesday.
