* U.S. markets slip as retailers hit
* Yen at 2-year low vs dollar, 16-month low against euro
* Retail sales fall short of expectations, shares down
NEW YORK, Dec 26 (Reuters) - The yen fell to a two-year low
against the dollar on Wednesday as Japan's new prime minister
called for weakening the currency to stimulate inflation, while
U.S. stocks fell, led by declines in retailers' shares.
Sales growth at U.S. retailers was projected to have fallen
short of expectations during the holiday shopping season,
according to preliminary estimates from firms that track retail
spending.
The S&P 500 was down 0.5 percent, with consumer
discretionary stocks among the hardest hit. The Morgan Stanley
Retail index dropped 1.9 percent.
U.S. shares were also pressured as it appeared Congress
will not negotiate a deal before Jan. 1 to avoid the "fiscal
cliff," a series of $600 billion in spending cuts and tax hikes
that would slow the U.S. economy sharply unless lawmakers take
action.
There is concern that potential tax hikes cut into U.S.
holiday spending.
"With the 'fiscal cliff' hanging over our heads, it was hard
to convince people to shop, and now it's hard to convince
investors that there's any reason to buy going into year-end,"
said Rick Fier, director of trading at Conifer Securities in New
York.
A U.S. official said on Tuesday that President Barack Obama
may return to Washington from his Hawaiian holiday as early as
Wednesday evening to resume talks.
A series of big decisions will wait until early 2013, when
tax rates are scheduled to rise for most Americans. Economists
warn that the world's largest economy could fall into recession
as a result unless action - even retroactive - is taken to
cushion the blow of higher rates and reduced spending that has
helped bolster a weak economy.
The Dow Jones industrial average was down 36.95
points, or 0.28 percent, at 13,102.13. The Standard & Poor's 500
Index was down 7.08 points, or 0.50 percent, at 1,419.58.
The Nasdaq Composite Index was down 19.01 points, or
0.63 percent, at 2,993.59.
U.S. stocks have held in a tight range, recovering losses
sustained just after the U.S. election in November. The S&P 500
is still up about 13 percent on the year.
The dollar rose as high as 85.74 yen on trading
platform EBS, the highest since September 2010, following the
swearing-in of Shinzo Abe as premier and was last at 85.64. The
euro rose as high as 113.40 yen, a 16-month high, up
1.4 percent. The euro was at $1.3215 against the dollar,
up 0.3 percent.
Abe is calling for a mix of aggressive monetary policy
easing and big fiscal spending to beat deflation and weaken the
yen. He is pressuring the Bank of Japan to adopt a 2 percent
inflation target that would auger for a weaker currency,
threatening changes at the central bank if his wishes are not
met.
"The election of Abe has had a galvanizing effect on the
dollar/yen exchange rate and he has been able to accomplish more
in two months of jawboning than the BoJ has... over the past
several years," said Boris Schlossberg, managing director of FX
strategy at BK Asset Management in New York.
Many markets remained closed following Christmas. European
exchanges were largely shuttered, and Hong Kong and Australia
were also closed. The MSCI All-World Index was
down 0.2 percent on Wednesday.
U.S. single-family home prices rose in October for the ninth
month in a row. The S&P/Case Shiller composite index of 20
metropolitan areas gained 0.7 percent in October on a seasonally
adjusted basis, stronger than the 0.5 percent rise forecast by
economists polled by Reuters.
Ten-year U.S. Treasury notes rose 4/32 of a point in price
to yield 1.762 percent.
Brent crude climbed above $110 per barrel on
Wednesday, hitting a two-month high, with investors hoping for a
last-minute deal to avoid a U.S. fiscal crisis. U.S. crude
futures gained $2.22, or 2.5 percent, to $90.83.
YEN WEAKENS
The weaker yen has bolstered hopes for better earnings from
Japanese companies and underpinned the Nikkei, which has gained
about 18 percent since mid-November, when the election was
scheduled. The yen has lost nearly 8 percent against the dollar
in the same period.
The Nikkei closed at a nine-month high on Wednesday,
with a 1.5 percent gain.
Minutes of the BOJ's policy-setting meeting in November,
released on Wednesday, showed that some board members said the
central bank must act decisively, without ruling out any policy
options, if the outlook for the economy and prices worsens
further.
MSCI's broadest index of Asia-Pacific shares outside Japan
was little changed. Shanghai shares were
flat, but stayed in positive territory on the year after a 2.5
percent jump on Tuesday erased 2012 losses. It is set for its
first annual gain in three years.