An inconclusive election result in Italy that raises the specter of policy deadlock in the euro zone's third largest economy, appears to have stopped a stellar euro rally and could mark a turnaround in the currency's recent good fortunes, analysts said.
Fed Chairman Ben Bernanke is expected to provide soothing words about the Fed's easy money policies, but markets may react more to new bearish concerns out of Europe.
The U.S. dollar and euro fell sharply in late afternoon trade as uncertainty about Italy's elections and sharp losses in stocks led investors to unwind trades funded in yen.
Gold rose on Monday, as euro zone fears related to an uncertain outcome for Italy's election lifted safe-haven buying.
U.S. Treasury debt prices rose and benchmark yields dipped to the lowest in a month on Monday, as Italian exit polls reflected uncertainty over whether the country would be able to form a stable government.
Brent crude rose after official Chinese data indicated strong demand in the world's second-largest oil consumer, though prices pared early gains as uncertainty surrounding Italian election results weighed on the euro and spooked markets.
Uncertainty over the Italian election outcome dragged European indexes off their highs on concern that an unclear outcome could hamper the country's effort to implement economic reforms.
U.S. stock index futures were higher Monday, boosted by market gains overseas, lifted by optimism over the Italian elections and prospects for looser Japanese monetary policy.
Hopes of a victory for a pro-reform Italian government helped fuel a stock market rally and support government bonds on Monday in the final stages of voting in the general election.
Benchmark oil prices are set to weaken further this week though losses may be limited if U.S. Federal Reserve Chairman Ben Bernanke defends the central bank's stimulus efforts this week at his semi-annual testimony to Congress.
Reports that Japan's government will likely nominate Haruhiko Kurodo, an advocate of aggressive monetary easing, as the next Bank of Japan (BOJ) chief, do not come as a surprise.
Most Asian stock markets rallied on Monday, led by a 2.4 percent jump in Japanese shares after the yen slumped on news the government looks set to nominate Haruhiko Kuroda, the president of the Asian Development Bank and advocate of aggressive monetary easing, as the next Bank of Japan governor.
Washington's budget debate could stir up new anxieties as markets head into March, even with expected reassurances about Fed policy from Fed Chairman Ben Bernanke in the week ahead. Europe could also come back into play in the coming week, as currency traders are focused on the outcome of the Italian election.
The euro hit a six-week low against the dollar Friday, heading for a third straight week of losses, after the European Central Bank said banks will repay less than half the expected amount of loans.
U.S. Treasurys were trading steady to slightly higher in price, in the absence of key U.S. economic data, as investors looked ahead to testimony next week from Federal Reserve Chairman Ben Bernanke.
Oil prices rose on Friday as German business sentiment improved, but crude futures still fell by the largest weekly margin of 2013 after a sell-off in commodities markets earlier this week.
Gold retreated under $1,600 an ounce on Friday, paring earlier gains in line with the euro and stock markets, and stayed on track for a second straight weekly loss.
European shares closed steeply higher on Friday, reversing losses in Thursday's volatile trading session.
U.S. stock index futures were higher across the board Friday after stocks logged their sharpest two-day drop this year and following comments from St. Louis Federal Reserve Bank President James Bullard that the central bank's aggressive easy money policy will stay for a "long time."
Asian stock markets rebounded on Friday to pare the previous day's losses, but weak economic growth in Europe and worries the U.S. Federal Reserve might scale back its quantitative easing program capped major gains.
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