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updated: 11/6/2012 7:55 AM

Markets focus on U.S. as Americans head to vote

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Associated Press

LONDON -- Europe's stock markets made some modest gains Tuesday as Americans headed out to vote for their next President, with the latest opinion polls pointing to a narrow victory for incumbent Barack Obama.

After months of campaigning and billions of dollars spent, election day has arrived. Many investors are hoping that the result will be clear enough to avoid a re-run of 2000 when the result was only known weeks later after a Supreme Court decision.

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"That is a situation global markets fear most," said Cameron Peacock, market analyst at IG. "The best possible outcome would be for a clear and unqualified victor to emerge."

A decisive outcome, it is hoped, will pave the way for a swift budget agreement between the different arms of the U.S. government, thereby averting an automatic increase in taxes and spending cuts that could be imposed at the start of 2013.

Results will not start emerging until after Wall Street's close but investors already appear to be pricing in the prospect of a victory for Obama, who has moved slightly ahead in a raft of national polls over the past few days and maintained his lead in swing states such as Ohio and Wisconsin.

In Europe, Germany's DAX was up 0.5 percent at 7,365 while the CAC-40 in France rose 0.6 percent to 3,470. The FTSE 100 index of leading British shares was up 0.5 percent at 5,866. Wall Street was poised for a solid opening too, with both Dow futures and the broader S&P 500 futures up 0.2 percent.

Whoever wins the race for the White House, the honeymoon and relief is likely to be short given the rising debt problems the world's largest economy faces

Budget discussions will likely remain one of the main drivers in markets for the next few weeks. If no agreement on the U.S. budget can be found, the country faces a "fiscal cliff" of higher taxes and deep automatic cuts in military and domestic spending by the start of next year -- an event that would put the brakes on any recovery in the world's largest economy.

Past negotiations, thanks to the polarized political atmosphere in Washington, have usually gone to the wire and a deal is invariably not done until the final minute. If Romney does win, he won't enter the White House until January. However, he will still have great influence in the discussions as President-elect.

"Though we are inclined to assume that any tightening will be engineered so as to minimize the damage to the recovery, there can be no denying that Congress' proclivity towards eleventh hour deals may yet rattle a few nerves," said Neil Mellor, an analyst at the Bank of New York Mellon.

While the focus in the markets remains on the U.S., investors will continue to monitor developments in Greece amid concerns that a political crisis in the country may end up derailing an austerity package that is required for the country to receive its next batch of bailout funds. Without the money, Greece faces the prospect of going bankrupt this month and possibly leaving the euro.

Worries over Greece have stalked the euro over the past few trading sessions, but the currency was holding steady at $1.28 through morning trading in London.

In Asia investors are also monitoring developments in China ahead of Thursday's opening of the Communist Party congress -- the once-in-a-decade forum used to name China's top leadership. Although current Vice President Xi Jinping is almost certain to be named China's next leader, markets will be closely watching the congress for hints on how the new leadership plans to tackle a stubborn economic slowdown.

Japan's Nikkei 225 index fell 0.4 percent to close at 8,975.15. Hong Kong's Hang Seng lost 0.3 percent to 21,944.43. Mainland Chinese shares also closed lower. The Shanghai Composite Index lost 0.4 percent to 2,106 and the Shenzhen Composite Index shed 0.6 percent to 853.33.

In the oil markets, benchmark crude for December delivery was up 16 cents at $85.81 per barrel in electronic trading on the New York Mercantile Exchange.

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