By Jeremy Gaunt, European Investment Correspondent LONDON, Nov 12 (Reuters) - Whether it is just an opportunity to correct recent market patterns or something more deeply bearish, investors have decided that a period of avoiding risk is in order. As a result, the combination of the Group of 20 nations being unable to solve their disagreements over global imbalances and resurfacing fears about the euro zone periphery's ability to manage its debt could mean the coming week will be volatile. A lot may depend on whether European Union officials do anything to ease pressure on Ireland's finances. Markets swung around on Friday on rumours of a bailout, later denied, so the EU finance ministers meetings on Tuesday and Wednesday should get even more attention than usual. But even beyond that, the risk rally that began in May and took off in earnest in late August when investors began preparing for more quantitative easing asset-buying from the Federal Reserve has come off the boil in recent days. The MSCI all-country world stock index has lost a little more than 2 percent since hitting 26-month highs on Nov. 5, though it is still 22 percent higher than in May at the height of the Greek crisis and 16 percent above where it was when more Fed QE started to be factored in. Those kinds of levels are often enough in themselves to trigger sell-offs, and it is perhaps not surprising that some tactical re-allocations have taken place. At the same time, the dollar has been generally stronger over the past week or so as risk appetite has eased. "We have taken some risk off," said John Stopford, head of fixed income at Investec Asset Management. "We have been quite short dollars and we have bought some back," he said. BIG AND LITTLE The mood has nonetheless been compounded by two factors that moved into the limelight when the Fed went ahead with its QE, allowing investors to start focusing on other things. First, G20 leaders have spent a lot of time in the past week reminding investors about the large imbalances in the world economy, while failing to do much about them. They agreed to a watered-down commitment to watch out for dangerous imbalances, but only after some acrimony. As a result, concerns over whether the United States is deliberately devaluing the dollar to boost its trade and whether China should let the yuan strengthen remain in place. That could prompt emerging market countries to ramp up capital controls or countries to indulge in protectionist trade practices, all of which could eventually impact current investment flows from deficit countries to surplus ones. But not immediately, of course. Which leads to the second big factor hovering over markets as the new week starts -- euro zone debt, particularly Ireland's. Irish government bonds have been under intense pressure as investors have speculated whether the debt-strapped country, which is fully funded until mid-2011, will have enough money to keep going and/or pay its obligations. Yields fell on Friday after EU leaders reiterated that holders of outstanding bonds would not be forced to take losses in any debt restructuring in the bloc. Ireland also insists that it does not need to apply for EU/International Monetary Fund assistance. But the issue shows no sign of disappearing, and although contagion has been highly limited so far there are concerns that jitters will spread to other peripheral EU economies and beyond, as was the case during the Greek crisis earlier this year. "The Irish thing is noise (but) is definitely a concern," Investec's Stopford said. "It may not come to a head that quickly. It is not going to go away." FUNDAMENTALS What may stop Ireland from dragging financial markets into another global crisis are the improved economic fundamentals that exist now compared with earlier in the year. "The renewed debt crisis will have no serious impact on euro zone growth," Holger Schmieding, chief economist for wealth managers and private bank Berenberg, said in a note. "Remember that, while the Greek and euro crises raged earlier this year, the euro zone economy had managed to accelerate." Investors have been generally pleased by recent global economic data, from China, the United States and the euro zone. It has been part of the momentum behind the post-summer rally. The coming week will tell them about U.S. housing, German business confidence, British employment and how much demand there is for Spanish debt, among other events. (Editing by Hugh Lawson) Keywords: MARKETS WEEKAHEAD (email@example.com; +44 207 542 1028; Reuters Messaging: firstname.lastname@example.org) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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