GLOBAL MARKETS-US budget woes weigh on stocks, yen falls

* Global stocks fall on U.S. 'fiscal cliff' uncertainty

* Trading light ahead of early holiday close

* Crude oil lower, yen drops after comments from premier

NEW YORK, Dec 24 (Reuters) - The yen tumbled on Monday in an

otherwise quiet day as a continued deadlock in U.S. budget talks

left an undercurrent of uncertainty in markets ahead of the

Christmas break.

Volume was light going into the holiday, with many traders

already out on vacation. The U.S. stock and bond markets closed

early, while a number of global markets, including those in

Germany and Italy, were closed.

The major mover was the yen, which fell to 20-month

lows after incoming premier Shinzo Abe renewed pressure over the

weekend on the Bank of Japan to adopt a 2 percent inflation

target. The dollar rose 0.7 percent against the yen.

The FTSEurofirst300 closed down 0.1 percent while

the MSCI index of global stocks was slightly

lower, down 0.2 percent.

Global equities have been pressured by the political

stalemate with respect to the U.S. "fiscal cliff," a combination

of tax hikes and spending cuts scheduled to take effect next

year. Investors fear that if no deal is reached, it could push

the U.S. economy into recession, severely hurting global growth.

Some U.S. lawmakers expressed concern on Sunday that the

country would go over the cliff, and some Republicans charged

that was President Barack Obama's goal. Talks are stalled with

Obama and House of Representatives Speaker John Boehner out of

Washington for the holiday.

"This will continue to erode confidence and continue to

cause problems," said Joe Saluzzi, co-manager of trading at

Themis Trading in Chatham, New Jersey. "I am sure they will come

up with some patch like they always do... but it's concerning

that they can't get their stuff together."

Although there is no official date for talks to resume, the

two sides still have a few days after Christmas to find a

compromise before the Jan. 1 deadline when the measures start to

take effect.

The Dow Jones industrial average ended down 51.76

points, or 0.39 percent, at 13,139.08. The Standard & Poor's 500

Index was down 3.49 points, or 0.24 percent, at 1,426.66.

The Nasdaq Composite Index was down 8.41 points, or 0.28

percent, at 3,012.60.

Currency markets were largely quiet. Against the backdrop of

the "fiscal cliff" uncertainty, the dollar was less than

0.1 percent higher against a basket of major currencies while

the euro was flat.

Activity in other assets was also subdued, with spot gold

edging off a four-month low and February crude

futures up 0.2 percent at $88.74 per barrel.

The benchmark 10-year U.S. Treasury note was

down 2/32, with the yield at 1.7772 percent.

For the year, the S&P 500 has risen about 13.5 percent. In

the face of the budget uncertainty, many investors may opt to

lock in gains for the year until there is resolution on that

front.

STRONG FINISH

The uncertainty over the U.S. budget is threatening to sour

what has been a strong second half of the year for equity

markets. The FTSEurofirst 300 is up 20 percent since June while

the Euro STOXX 50 has gained almost 30 percent. Both

indexes are set to post their best annual performances since the

post-Lehman crisis bounce of 2009.

Most European bond markets were already shut for Christmas.

One of the few to be open was in Britain, where benchmark

10-year yields ticked higher. Still, investors are showing

increasing appetite for European stocks. EPFR Global data

reported that flows into equity funds have increased for the

last 19 weeks.

"This year has been a year of transition, and now it's time

to turn the page and move on, to start picking stocks again for

the long term, companies exposed to the emerging consumer in

places like Asia and Africa," said David Thebault, head of

quantitative sales trading at Global Equities.

Others warn, however, that the euro zone crisis may still

have some bite left. Elections are due next year in Italy and

Germany, while Spain's government, companies and banks need to

refinance huge amounts of debt.

"Policymakers in Spain will not be looking forward to the

start of the year and January will probably be quite volatile in

Europe," said ABN Amro economist Aline Schuiling. "The funding

in the first quarter for Spain will be the test... Its deficit

is now roughly the same as Greece's."

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