European stocks edge up in thin trading

MOSCOW (AP) -- European stocks edged up on Thursday as traders returned from the Christmas break anticipating progress in budget talks in Washington.

Britain's FTSE 100 closed the day unchanged at 5,954, while Germany's DAX was up by 0.3 percent at 7,655 and France's CAC-40 had risen 0.6 percent to 3,674.

Investors were eagerly waiting for news from Washington where U.S. President Barack Obama was to resume budget talks with Congress after cutting short his Hawaii vacation. The negotiations aim to avoid the so-called "fiscal cliff" — deep budget cuts and tax hikes that would kick in on Jan. 1 unless the White House and Congress agree on a budget deal.

Congressional officials, however, said Wednesday they knew of no significant strides toward a compromise over a long Christmas weekend. U.S. Senate leader Harry Reid added to this sense of unease Thursday when he suggested that a budget deal was unlikely before the Jan. 1 deadline. On Wall Street, the Dow Jones industrial index dropped 0.8 percent to 13,012 points while S&P 500 was off 0.9 percent at 1,406.

Trading was sluggish Thursday in the first day of trading following the break for Christmas as many investors are expected to remain on vacation at least until next week.

"Trading volumes across all markets will of course remain quite subdued, as most market participants in Europe and the U.S. are on vacation until next Wednesday and those that are at work are decidedly lacking in holiday cheer," Moscow-based investment bank Sberbank CIB said in note to investors.

Markets got some lift from optimistic data from the U.S. and a statement from the German finance minister Wolfgang Schaeuble who said in an interview that the worst of the debt crisis in the 17 European Union countries that use the euro appears to be over.

In the U.S., the Labor Department reported a 12,000-drop in weekly applications for employment benefits, to 350,000 in the week ending Dec. 22 — its lowest level since March 2008. Separately, a survey by FactSet showed that sales of new homes probably rose in November from October, adding evidence that the market is in a sustained recovery.

Spain's stocks failed to match the rest of Europe's gains, with the IBEX 35 index down 0.2 percent at 8,280. Shares in bailed-out bank Bankia plunged 19.5 percent after officials with the nation's bank bailout fund revealed the nationalized institution had a negative value of €4.2 billion ($5.6 billion).Asian stocks on Thursday pushed higher with Japan leading the way. The country's benchmark index hit its highest level in more than a year on optimism that a new government in Japan will stimulate the country's sluggish economy.

Tokyo's benchmark Nikkei 225 index rose 0.9 percent to close at 10,322.98, its highest finish since March 2011. That added to Wednesday's 1.5 percent gain and took the Nikkei to a 22 percent increase for the year. Hong Kong's Hang Seng gained 0.4 percent. South Korea's Kospi added nearly 0.3 percent. Benchmarks in Singapore, Taiwan and Australia also posted gains.

Incoming Japanese Prime Minister Shinzo Abe has called for more public works spending to reinvigorate the economy. He wants the Bank of Japan to raise its inflation target from 1 to 2 percent to drag the country out of two decades of deflation, or steadily declining prices that have deadened economic activity.

"The message from Japan is clear at the moment, the incoming government will do everything in its power to weaken the yen and stimulate the economy," Australia's IG Markets said in a report.

In China, shares lost ground, with the Shanghai Composite Index falling 0.6 percent while the Shenzhen Composite Index lost 0.8 percent.

Benchmark oil for February delivery edged up 12 cents to $91.10 in electronic trading on the New York Mercantile Exchange. The contract jumped $2.37 to finish at $90.98 per barrel in thin post-Christmas trading in New York.

In currencies, the euro rose to $1.3275 from $1.3220 late Wednesday in New York. The dollar gained to 85.74 yen from 85.63 yen.

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Pamela Sampson in Bangkok and Fu Ting in Shanghai contributed to this report.