By Mike Dolan and Jeremy Gaunt
LONDON, Jan 5 (Reuters) - World equities, oil prices and the euro retreated from early new year highs on Wednesday, with underlying economic optimism reined in by wariness about lingering debt woes, possible data surprises and wildcard risks.
In a pattern investors say may well be repeated throughout 2011, a burst of new year investor optimism over the past week quickly fell prey to profit taking and correlation trading that automatically links moves in one security to the buying or selling of another.
Commodity price falls -- which some say were accelerated by a fall in the flood-hit Australian dollar and generalised U.S. dollar strength -- continued for a second day in a row. This, in turn, all put pressure on previously buoyant world equities.
Oil, which had only a few days ago looked to be heading to $100 a barrel again, fell back below $89 a barrel in London. [O/R]. Prices of both commodities and equities, however, remained around at multi-year highs.
World stocks as measured by MSCI .MIWD00000PUS were down 0.5 percent, though still within a few points of highs last seen in the third quarter of 2008.
Europe's FTSEurofirst 300 .FTEU3 was down 1.0 percent. Earlier, Japan's Nikkei .N225 closed down nearly 0.2 percent after hitting a 7-1/2 month closing high on Tuesday.
"There might just be an element of nerves creeping back into the market as investors return to their desks," said Keith Bowman, equity analyst at Hargreaves Lansdown.
NEW YEAR HANGOVER
A number of market moves were put down to investors adjusting positions after end-of-year balancing of portfolios.
Investors were also awaiting U.S. jobs data due on Friday for confirmation that the world's largest economy is recovering, a key factor in recent equity rallies. A early cut of the month's private-sector employment reading was due on Wednesday.
"Growth in the labour market is one of the biggest deciding factors for markets this year, that is why we are seeing investors a bit cautious ahead of the (jobs) numbers. If the job figures are good, we could see a push higher," said David Jones, market strategist at IG Index.
The ADP National employment survey for December, a precursor to Friday's non-farm payrolls report, was due at 1315 GMT while U.S. ISM non-manufacturing data was set for 1500 GMT. ECON
"There is some optimism with regards to the U.S. economy, but that is mixed with concerns over where Europe is going in the short- to medium-term. We are likely to remain very data sensitive," Bowman at Hargreaves Lansdown said.
Stocks related to commodities acted as the main drag on bourses. Anglo American (AAL.L), BHP Billiton (BLT.L), Kazakhmys (KAZ.L) and Rio Tinto (RIO.L) shed 1.5 percent to 3 percent.
Commodities were hit hard on Tuesday, with the Reuters-Jefferies CRB index .CRB closing nearly 1.6 percent down as energy, metals and agricultural investors took profits on the heady gains made on thin holiday volume over the past two weeks. [COM/WRAP]
The sell-off continued in some areas on Wednesday. Copper futures, for example, fell two percent in London. The Australian dollar AUD= was down about 0.5 percent.
European chemical shares were among the fallers, with the STOXX Europe 600 chemicals index .SX4P down 1.6 percent on concerns about a slowdown in world demand.
Chemicals market leader BASF (BASFn.DE) fell 3.3 percent, with traders pointing to profit taking following a strong run. The stock had gained almost 22 percent since early October.
FIRMER DOLLAR
The dollar took some of the blame for commodities' slide, holding firm on hopes for U.S. economic recovery. [FRX/]
Market players said the dollar's rise and the partly related drop in commodities this week have been driven by position unwinding.
"The move over the past two weeks was somewhat exaggerated, having taken place in thin liquidity. With liquidity now coming back on stream, the markets are now reassessing some of the moves," said Sue Trinh, strategist at RBC Capital Markets.
The dollar index, which measures the greenback's value against major currencies, rose 0.4 percent to 79.75. .DXY
The euro dipped 0.6 percent to $1.3212 EUR=, with traders nervy over the higher yields paid by Portugal at its latest Treasury bill auction on Wednesday and reports about European Union plans to insist in future on senior creditors accepting writedowns on the debt of ailing EU banks.
Core German government bond yields fell as demand grew for safer assets and peripheral euro government debt yields climbed after the Portuguese auction.
"On the face of it the auction met solid demand given the healthy cover ratio, though this obviously comes at a much higher yield than the previous six-month Portuguese offering last September," said Credit Agricole strategist Orlando Green.
Source: www.reuters.com
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