* World shares at 17-month highs, European stocks also rally
* Euro at multi-month highs vs dollar, yen
* Brent crude rises above $110 a barrel
NEW YORK, Dec 19 (Reuters) - World stocks trimmed gains on
Wednesday after reaching a 17-month high as talks to avert the
U.S. "fiscal cliff" appeared to stall, braking a surge in the
euro as it rose on an improved economic outlook for Germany.
Wall Street turned lower as a rise in tensions in Washington
threatened to unravel significant progress made over the last
week in talks to slow the growth of the country's $16 trillion
President Barack Obama accused Republicans of digging in
their heels due to a personal grudge against him. Republican
speaker of the House of Representatives, John Boehner, called
Boehner said the House on Thursday would pass legislation
that would prevent tax increases on all income below $1 million
- something that Obama has threatened to veto.
Global equity markets and other assets seen as "risky" rose
earlier in the session on expectations the impasse over the U.S.
budget will be resolved. Oil prices rose on hopes a resolution
to the fiscal cliff would spur crude demand.
"There was a risk-on tone when we started the day globally.
All markets were looking to go higher, and I think crude has fed
off that," said Addison Armstrong, director of market research
at Tradition Energy in Stamford, Connecticut.
The Dow Jones industrial average closed down 98.99
points, or 0.74 percent, at 13,251.97. The Standard & Poor's 500
Index fell 10.98 points, or 0.76 percent, at 1,435.81.
The Nasdaq Composite Index slid 10.17 points, or 0.33
percent, at 3,044.36.
Brent crude settled $1.52 higher at $110.36 a barrel
as it headed toward its highest close in two weeks. U.S. oil
gained $1.58 to settle at $89.51.
Equity markets in Europe rose as a key business survey in
Germany bolstered investor sentiment by suggesting that Germany,
Europe's biggest economy, was likely to bounce back quickly from
The growing German confidence also lifted the euro to a
16-month high against the yen and an 8-1/2-month peak versus the
U.S. dollar, while Brent oil rose toward $110 a barrel.
Investors gave little importance to data that showed U.S.
homebuilding permits touched their highest level in nearly 4-1/2
years in November, while ground-breaking activity dropped.
In Europe, top company shares scaled 18-month highs on
expectations the U.S. fiscal debacle will be averted.
The FTSEurofirst 300 index rose 0.41 percent to end
at 1,142.13, just off a 19-month closing high.
The better tone evident earlier was supported by the U.S.
Federal Reserve's efforts to boost the U.S. recovery, signs of
growing economic momentum in China and talk that Japan is set
for a policy shift to lift itself out of recession.
The latest German Ifo Institute survey of 7,000 firms
bolstered this sentiment by finding that business confidence had
improved for a second straight month in December, in part
because of better export prospects.
The brighter outlook pushed MSCI's all-country world equity
index to levels last seen in July 2011. But the
index trimmed gains, rising 0.09 percent to 341.75 on Wednesday.
The yen weakened to its lowest point in more than 18 months
against the dollar on expectations the Bank of Japan will ease
monetary policy at the end of a two-day policy meeting on
The euro rose 0.05 percent to 1.3236 to the dollar
after hitting 112.49, its highest since August 2011. Against the
yen, it gained 0.30 percent to 111.70, its highest
since August 2011.
The dollar index fell 0.05 percent to 79.325 after
hitting a two-month low of 79.008.
The benchmark 10-year U.S. Treasury note rose
5/32 in price to yield 1.8014 percent.