UniCredit share issue lifts banks before Fed meeting

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[December 13, 2016]  By Nigel Stephenson

LONDON (Reuters) - Global shares edged up on Tuesday, helped by gains in banks after Italy's largest lender unveiled a 13 billion-euro share issue, while the dollar held steady before a Federal Reserve meeting expected to deliver higher interest rates.

Wall Street also looked set to rise, with index futures about 0.3 percent higher.

UniCredit launched Italy's biggest share issue to clean up its balance sheet and boost profitability, the latest move to strengthen the Italian banking sector, which has been clouding the outlook for European stocks.

UniCredit shares rose 8.3 percent and an index of Italian banks added 3 percent as the pan-European STOXX 600 share index gained 0.8 percent.

"It's a hard medicine to swallow, but UniCredit's move to raise billions of euros and a restructuring program would put the bank in a much better shape," said Koen De Leus, chief economist at BNP Paribas Fortis.

Markets were otherwise focused on the two-day Fed meeting, which is almost certain to conclude with only the second rise in U.S. interest rates since the global financial crisis.

While a hike of 25 basis points in the Fed's target range of 0.25-0.50 percent is priced in, investors will be examining the Fed's statement and economic forecasts for any signs of how the central bank thinks Trump's election affects the outlook for growth and inflation.

"The big question is, what sort of pace can we expect from the Fed for next year?" said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The dollar was all but flat against a basket of major currencies. The euro fell 0.2 percent to $1.0612 and the yen fell 0.2 percent to 115.24 per dollar.

U.S. 10-year Treasury yields, which popped above 2.5 percent on Monday for the first time since October 2014, fell 3 basis points on Tuesday to 2.45 percent.

"We think the meeting may be a catalyst for people to take some profit on long dollar positions," Barclays analyst Hamish Pepper said.

Sterling bucked the trend, rising 0.3 percent to $1.2715, buoyed by comments from finance minister Philip Hammond that Britain should have a transition period to smooth its exit from the European Union.

Data showed UK consumer prices rose 1.2 percent year-on-year last month, their biggest rise since October 2014.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent, while Japan's Nikkei stock index shrugged off losses as the yen pulled off its highs and ended 0.5 percent higher.

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Men walk past an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, November 18, 2016. REUTERS/Toru Hanai

Global shares, as measured by MSCI's all-country world index, rose 0.3 percent but held below Monday's 16-month high, touched as crude oil prices surged after the Organization of the Petroleum Exporting Countries and non-OPEC producers reached their first deal since 2001 to reduce output.

Brent crude, the international benchmark, rose 1 percent on Tuesday to $56.23 a barrel but traded below Monday's high of $57.89.

Italy's efforts to clean up its banks - the Treasury said on Monday it was ready to bail out Monte dei Paschi di Siena if necessary - pushed yields on its government debt lower and saw the premium the country pays to borrow, compared with Germany, squeezed to its narrowest in more than a month.

Italian 10-year yields fell 10 basis points to 1.91 percent while German equivalents fell 5 bps to 0.36 percent.

This followed new Prime Minister Paolo Gentiloni announcing an almost unchanged cabinet on Monday.

"The markets appear to be taking the developments in the banking sector quite positively and the cabinet chosen by Gentiloni has reassured investors," DZ Bank strategist Christian Lenk said.

Gold, which is highly sensitive to rising U.S. interest rates as they lift the opportunity cost of holding non-yielding assets, fell 0.4 percent to just below $1,158 an ounce.

(Additional reporting by John Geddie, Patrick Graham and Atul Prakash in London; Editing by Andrew Roche)

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