Global Markets

• European shares shed early gains and peripheral euro zone bonds dipped on Thursday after Spain paid a high premium at a debt auction, ahead of a summit at which EU leaders will focus on the region's debt crisis.

• US Treasury yields eased but held near seven-month highs after jumping the previous day on a rise in inflation expectations and the spectre of higher growth and a wider deficit.

• EU leaders are meeting in Brussels on Thursday and Friday for their end-of-year summit, with efforts to overcome the year-long debt crisis at the heart of their agenda.

• Leaders will try to agree how to stop it spreading, with Portugal and Spain in their sights, and discuss changing the EU's treaty to create a permanent crisis-resolution mechanism from 2013 and might look at enlarging the existing crisis fund.

• Markets are not anticipating any significant developments from the summit, though any positive news would likely support the euro and risk appetite.

• "Spain is going to be the issue, with the threat of a downgrade, investors will be looking for comments from the EU meeting," Will Hedden, a sales trader at IG Index, said.

• "We don't want Spain to get bailed out. If it does, it sends a big message to investors that if an economy as big as Spain is fragile, then the euro-zone may be a risky place to do business."

• Spain was forced to pay a hefty premium at its final bond auction of the year on Thursday, in a key test of investor appetite for euro zone peripheral debt a day after Moody's said it may cut the country's rating.

• The Spanish Treasury raised 2.4 billion euros ($3.20 billion), within the targeted range of 2-3 billion euros but disappointing some analyst who expected more debt to be sold.

• "In the short term this should reduce pressure on the Spanish market, but I think when one looks at the bigger picture and considers the small amount sold, with low bid-covers, yet at a high yield, then it seems clear that peripheral markets remain under pressure and in need of support from policymakers," said Peter Chatwell, rate strategist at Credit Agricole in London.

• Government debt yields for Spain as well as Portugal and Italy were pulled higher after the auction, while Bunds traded in a narrow range with yields little changed on the day.

US YIELDS EASE

• European stocks gave up earlier gains to trade close to flat at 1,128.79 as shares in southern Europe dipped following the Spanish bond sale.

• The euro was up 0.1 per cent against the dollar at $1.3225 after coming under pressure on Wednesday on Moody's Spain warning, while the dollar was steady versus a basket of currencies.

• Oil was trading a touch lower at $88.10 and gold rose 0.2 per cent.

• In the cash market, the yield on the 10-year US note slid to 3.47 per cent after climbing as high as 3.57 per cent overnight.

• The 10-year yield has risen nearly 90 basis points since November, contributing to a dramatic steepening of the 2-year to 10-year yield curve to 282 basis points from 226 basis points at the beginning of November.

• That spread is on course for the largest widening in a quarter since the first quarter of 2008.

• "The market is very difficult now ... but what I do sense is that we've got down to levels that are technically supportive," said a trader at a European firm.

• "It's difficult to sell at this low and initiate a new position," he added.

• US equity futures were pointing to a slightly lower open ahead of a raft of US data, with the current account, housing starts, weekly jobless claims and the Philly Fed Business Activity index all set for release.