Spain, Italy boost euro overnight

Bond sales in Spain and Italy met with strong demand overnight, bolstering the euro, while in the US investors responded with enthusiasm to Marathon Oil's plans to spin off its refinery and pipeline operations.

In other good news, the US trade deficit unexpectedly narrowed in November as growing global demand and a weaker greenback bolstered overseas sales. The gap declined 0.3 per cent to US$38.3 billion, as exports increased to the highest level in more than two years.

"Exports will be a pretty significant boost" to growth in the fourth quarter, Jay Bryson, a global economist at Wells Fargo Securities, told Bloomberg News. "Exports remain relatively strong because of some bounce-backs in the rest of the world."

On the flipside, weekly initial claims for US unemployment benefits rose the most in six months, the Labor Department said, underpinning concern that the jobs market wasn't out of the woods yet.

Investors also didn't like Merck & Co's disappointing drug trial news. The drugmaker was the biggest percentage decliner in the S&P 500, plunging 6 per cent after it said it would pull a blood clot drug from one study and not give it to some patients in a late-stage trial.

In early afternoon trading, the Dow Jones Industrial Average slipped 0.13 per cent. The S&P 500 Index edged 0.02 per cent higher and the Nasdaq Composite Index rose 0.12 per cent.

In London, the benchmark Stoxx Europe 600 declined 0.4 per cent.

Spain and Italy followed Portugal with successful debt sales on Thursday, auctioning a total of €9 billion in bonds, in another sign that investors have regained a degree of confidence in the European Union's ability to stem the sovereign debt crisis.

"The figures look really good, it's the perfect sequel to the Portugal auction yesterday," Michael Leister, a strategist at WestLB in Duesseldorf, told Reuters. referring to the Spanish auction.

The euro rose 1.64 per cent to US$1.3351. The US dollar fell 0.22 per cent against the Japanese yen to 82.76. Against a basket of currencies, made up of its major trading partners, the US dollar fell 1.03 per cent.

After the bond sales, European Central Bank President Jean-Claude Trichet renewed a call for euro zone governments to boost the size and scope of their €440 billion rescue fund and warned of short-term inflation pressures in the euro area.

In London, ICE Brent crude for February rose 30 cents to US$98.42 at 11.27am EST, while US crude rose 30 cents to $92.16 a barrel.

Brent's premium against US crude widened toward US$7, from US$6.36 on Wednesday.

Opec will only hold an emergency meeting if oil climbed above US$100 and remained there, although the group's Gulf members could informally add supply if needed, a delegate from a Gulf Opec member state told Reuters on Thursday.

"We don't want the market to panic," the delegate told Reuters.

"And if the prices reach US$100 and we see that there is a need of supply from our customers, Gulf countries will start producing above their quotas, but this has not happened yet."

Palladium climbed to a 10-year high above US$800 an ounce, bringing this week's gains to 8 per cent amid expectations of faster global growth, stable investment demand and optimism stemming from the Detroit auto show.