* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
* Dollar falls on profit taking
* Italian stocks underperform again, banks squarely in focus
* German bond yields hit record low
By Atul Prakash
LONDON, Nov 25 The dollar's best run in almost
two years paused on Friday while Italian stocks continued to
underperform peers in Europe as the countdown to a referendum on
constitutional reform in the country entered its final week.
Futures on Wall Street were up 0.2 percent in light
trading. Bond and stock markets in the United States, which were
closed overnight for Thanksgiving, will close early on Friday.
Italian stocks, the worst performers this year
across major markets globally, were slightly lower, taking their
year-to-date losses to more than 23 percent. Concerns around
non-performing loans have halved the value of Italy's banks
A Dec. 4 referendum on constitutional reform in Italy will
kickstart a tense 18-month long political calendar in Europe
with French, German and Dutch general elections due next year.
European equities were little changed by midday on Friday
with defensive sectors such as healthcare and utilities clawing
back some of their recent losses, while banks and
commodity-related stocks were weaker. The pan-European STOXX 600
index remained on track for a third straight week of
Despite growing concerns on Italy, European shares have
gained 4.5 percent since Donald Trump's surprise victory in this
month's U.S. presidential election.
"It looks as if the market is taking a breather after a good
run. The market view is that Trump is going to spend more and
will shield the U.S. more so that we get higher inflation and
higher domestic growth," said Ronny Claeys, senior strategist at
KBC Asset Management.
"The market has reacted positively on Trump, but this could
change as his policies are vague at this stage. Investors will
react more on his policy details."
European energy stocks fell 0.5 percent after crude
oil prices slipped around 1 percent on rising Saudi supplies to
Asian clients and a fall in Chinese imports.
A Saudi-led plan to agree on crude output cuts from the
Organization of the Petroleum Exporting Countries (OPEC) and
other producers next week would only impact supplies from
February 2017 as most exporters sell their supplies two months
DOLLAR PAUSES FOR BREATH
On the currency front, the euro rose 0.4 percent to $1.0589
after weakening as far as $1.0518 on Thursday, its lowest
point since March 2015.
Expectations of rises in U.S. inflation and interest rates
have driven the greenback to a gain of more than 6 percent in
October and November combined, its strongest showing over a
similar period since its rally in early 2015.
Most investors expect those gains to continue, but a
combination of the Thanksgiving break in the United States,
market participants' need to process corporate flows at the end
of the month, and a raft of risks in the first half of December
all speak for cashing in some of those gains now.
"U.S. yields gapped higher at the open but we have been
unable to hold those gains and that has encouraged some
profit-taking," said Jeremy Stretch, head of currency strategy
at CIBC in London.
"There is a degree of consolidation (but) there is still a
consistent bias that means the dollar will remain pretty much
supported into the Fed meeting next month. The message seems to
be to take some profit and we will be looking to go again."
In the European bond market, short-dated German government
bond yields set a new record low and were on track for their
biggest two-week fall in more than three years, highlighting
demand for top-rated assets.
Demand for German debt for use as collateral for short-term
lending in repo markets has helped drive two-year bond yields
lower this week. Jitters ahead of an Italian referendum on Dec.
4 has also bolstered demand for German bonds, regarded as among
the safest assets in the world.
(Additional reporting by Patrick Graham, Dhara Ranasinghe and
Vikram Subhedar; Editing by Mark Heinrich)