* Euro on back foot before ECB policy meeting
* European stocks up 0.4 percent, bond yields nudge up
* Dollar near 12-1/2-year high after Fed hike talk
* Precious and industrial metals languish
By Marc Jones
LONDON, Dec 3 (Reuters) - Investors were hoping for another
bit of Mario Draghi magic on Thursday, after risk assets were
left bruised by comments from the head of the Federal Reserve
that she was "looking forward" to hiking U.S. rates.
European stocks .FTEU3 were up 0.7 percent near 3-month
highs and the euro EUR= was at a 7-1/2-year low, with Draghi
expected to expand the European Central Bank's money-printing
programme later and hike the cost for banks that hoard cash.
It followed a fresh spurt by the dollar .DXY overnight
that had sent gold XAU= sliding to a new 5-1/2-year low and
other commodity and emerging markets .MSCIEF tumbling back
again.
Those moves were triggered by Federal Reserve chief Janet
Yellen when she said on Wednesday that raising U.S. rates,
something the Fed is expected to do for the first time in nearly
a decade on Dec. 16, would be proof of the economy's recovery.
"When the Committee begins to normalize the stance of
policy, doing so will be a testament ... to how far our economy
has come," she said, referring to the Fed's policy-setting
committee. "In that sense, it is a day that I expect we all are
looking forward to."
It left the focus firmly on the ECB's moves later and
traders wondering whether whatever comes out of Frankfurt will
be able to offset the impact of higher Fed interest rates, which
tend to drive borrowing costs globally.
"Draghi is going to have to keep doing what he can," said
Didier Saint-Georges, managing director of fund manager
Carmignac.
"But the impact of central banks is meeting the wall of
diminishing returns... so he will have to do more and more and
more, and even then it won't have the same effect."
The ECB will announce its decision on rates at 1245 GMT and
any new bond buying plans at its 1330 GMT news conference.
Money markets are pricing in a cut of at least 10 basis
points in the ECB deposit rate to minus 30 basis points, while
economists in a Reuters poll expect an increase in asset buying
to 75 billion euros a month from 60 billion euros.
The sky-high expectations left short-term German yields
pinned near record lows in deep negative territory. Longer-dated
10-year yields were marginally higher across the region though,
having been dragged up by Yellen and U.S. yields.
OIL BOUNCES, METALS HEAVY
The euro fell 0.6 percent to $1.0553 EUR= , while the
dollar index .DXY , which measures the greenback against six
top world currencies, was hovering just below a 12-1/2-year high
of 100.51 .DXY it had hit overnight.
Wall Street futures ESc1 pointed to a spritely 0.6 percent
rise for the S&P 500 .SPX when it resumes, although that
would be merely taking back some of the near 1 percent lost
during Wednesday's volatility. .N
Those falls had weighed on Asia overnight. MSCI's main
regional index .MIAPJ0000PUS fell 0.4 percent as shares in
South Korea .KS11 , Hong Kong .HSI Australia .AXJO Malaysia
and Singapore dropped and as Tokyo's Nikkei .N225 ended flat.
.T
One of the few clear emerging market currency risers of the
day was Brazil's real.
News that the country's parliament had launched impeachment
proceedings against President Dilma Rousseff cheered investors
who have been critical of her handling of Latin America's
biggest economy, now deep in recession.
"Brazil is probably the biggest concern among emerging
market countries at the moment, similar to the way that Russia
was regarded a year ago," said UBS strategist Manik Narain,
adding the market's view was that impeachment could pave the way
for greater reforms in Brazil.
In commodities, oil bounced as much as $1 on bargain hunting
following its tumble overnight and following a report that Saudi
Arabia will propose at Friday's OPEC meeting that the group cuts
output by 1 million barrels a day next year.
U.S. crude CLc1 was up 1.6 percent at $40.58 a barrel
after dropping 4 percent overnight, with Brent up more than 2
percent at $43.40. LCOc1
But metals were down on global oversupply, shrinking Chinese
demand and the stronger dollar.
Spot iron ore prices have been plumbing 10-year lows this
week. IRONORE/ Copper on the London Metal Exchange was
down 0.7 percent at $4,527 a tonne and heading back towards a
6-year low.
(Additional Reporting by Shinichi Saoshiro in Tokyo and Karin
Strohecker in London; Editing by Mark Trevelyan)