These funds increased their holdings by 15% since the end of December, according to a Fitch report released Thursday.

Most of that increase stems from money markets adding to their positions in French banks, according to Fitch, which looked at roughly 45% of the $1.4 trillion managed by U.S. money market funds.
Even with the 15% increase, U.S. money market funds are still holding 65% less eurozone bank debt than they did nine months ago.

The funds now hold roughly 11% of their assets in eurozone banks, compared with 31% at the end of May 2011. That’s about one-third of the historical average.

“Fund managers are putting their toes back in the water, but very conservatively,” said Alex Roever, managing director and senior credit strategist at JPMorgan Chase.

Greece got a reprieve, but crisis not over:

In its report, Fitch warns that this modest turnaround might actually represent a new equilibrium in which U.S. money market funds remain more cautious than optimistic.

Additionally, the drop in U.S. money market funding has forced many banks in eurozone countries to scramble for alternative sources of financing and also cut back on businesses dependent on U.S. dollars.

And that’s a trend that may continue, said Fitch. So, even if money market funds regain a hearty appetitive for eurozone debt, the banks may not be willing participants.

JPMorgan’s Roever said that he expects that U.S. money market funds will likely wait to see if ratings firm Moody’s downgrades any of the eurozone banks it placed on review before investing more significantly in the eurozone.

Moody’s placed BNP Paribas, Deutsche Bank (DB), Societe Generale and 14 other banks on review last week.

The report notes that 27% of money market funds’ exposure to European banks is in the form of so-called repurchase agreements or “repos”. With repos, the banks selling them have agreed to buy back their own securities at a later date.

Money market funds are continuing to flee for the safety of U.S. Treasuries with about 19% of their cash in low-yielding, government-backed bonds. That’s above historical averages.

By Maureen Farrell @CNNMoneyMarkets.

During the first 10 trading days of 2012, roughly 6.8 billion shares a day changed hands in the United States, down from 8 billion in 2011 and 8.3 billion in 2010, according to the New York Stock Exchange. In 2007, trading volumes dropped as low as 5.8 billion.
Historically, trading slows down in December, as investors close out their books for the year. But activity tends to immediately ramp up in January.

Not so this year.

“People seem to be adopting a more cautious tone and really aren’t looking to do anything,” said Michael James, head equity trader at Wedbush Securities. “It definitely seems that many more people are observing from the sidelines. I haven’t seen any aggressive buying or shorting.”

That’s an understatement. Americans have been hoarding record amounts of cash since last July, according to the Federal Reserve data.
The monthly amount of cash placed in checking, savings and money market accounts, known as M2, grew at the fastest rate during the last six months of 2011 since the period following September 2001, according to the Fed.

To put that in perspective, investors put $889 billion, or eight times as much, into checking and savings accounts as they put into stocks or bonds during the first 11 months of 2011, according to TrimTabs Investment Research.

5 Worst Market Calls of 2011 :

Patient stock investors weathered the 2% or more intraday swings in the Dow (INDU), S&P 500 (SPX) and Nasdaq Composite (COMP) that became de rigueur in 2011. And at the end of the day, those swings gave investors a minimal payout. The S&P 500 ended 2011 just 0.04 points away from where it started — the smallest percentage change in history.

“A lot of people are hesitant to commit to the market given the winds that keep a lid on it strongly advancing,” said Rick Bensignor, chief market strategist at Merlin Securities and a 30-year Wall Street veteran. “Just because it’s a new year doesn’t mean that the ills of 2011 stop when the calendar stops.”

Among the reasons for fear: the idea that politicians and central bankers will continue to drive market movements, rather than fundamentals.

How European leaders choose to deal with the sovereign debt crisis will continue to affect prices of stocks around the world.

In the U.S., investors are also waiting to see whether Congress will extend the payroll tax breaks at the end of February and even more dramatically the Federal Reserve could intervene and quickly shift prices by choosing to print more money through a so-called QE3, or a third round of quantitative easing.

“What’s happening here is that investors don’t want to enter the market because there is a lot of uncertainty about policies so investors can’t make straightforward investment decisions,” said Komal Sri-Kumar, chief global strategist at TCW.

If these low volumes continue, they could exacerbate the earnings troubles at banks and make for a challenging first quarter.

The fourth-quarter trading slowdown hurt the performance of JPMorgan (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), and Citigroup (C, Fortune 500). All three banks reported double-digit drops in revenues from both stock and bond trading divisions.

“The financial sector has a special place in the overall stock market because the weakness in the financial sector immediately translates into weakness in the economy,” said Sri-Kumar. “If earnings go down, banks have to worry more about keeping capital ratios up so they become more reluctant lenders.”

Meanwhile, traditional stock trading is suffering from its own issues as trading desks face increasing competition from high-frequency traders and electronically traded funds.

“The equity business may well be done forever,” said Chris Kotowski, a banking analyst at Oppenheimer & Co. “Electronic trading is taking all the share, so people will never earn as much money trading equities as they did in the past.”

Fee generation aside, Kotowski said, investors can’t stay out of the market forever.

“At some point, people will say I don’t want to own Treasury bonds that yield 2%,” said Kotowski. With record low interest rates, checking and savings accounts give investors back even less.

“There will be a frantic period of activity,” adds Kotowski. “But you don’t know whether it’s three months from now or two years from now.”
-By Maureen Farrell (CNNMoney)

The Dow Jones industrial average (INDU) was down 47 points, or 0.4%, in afternoon trading. The S&P 500 (SPX) eased 5 points, or less than 0.4%, and the Nasdaq composite (COMP) fell 27 points, or 1%.

Shares of big technology companies were among the weakest performers. Dell (DELL, Fortune 500) plunged 10% after the computer maker issued a disappointing sales outlook late Monday. Hewlett-Packard (HPQ, Fortune 500) tumbled over 4%.“Technology is not cooperating,” said David Rovelli, managing director of U.S. equity trading at Canaccord Adams. “The Nasdaq is bringing us lower.”

Stocks opened higher following upbeat quarterly results from Target. But the gains faded in the afternoon, and investors gravitated toward more defensive stocks.Telecommunications companies Verizon (VZ, Fortune 500) and AT&T (T, Fortune 500) both added about 1.5%.

Shares of financial firms, which have underperformed the market this year, were also a bright spot. JPMorgan (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and American Express (AXP, Fortune 500) all gained over 1%.

Overall, traders remain wary given the uncertain outlook for the U.S. economy and the challenges facing European leaders as they struggle to resolve the festering debt crisis hanging over the euro zone.

Those concerns were behind theextreme volatility that rocked stock markets around the world last week. But trading has been more subdued this week with many shell-shocked investors moving to the sidelines or taking a vacation.

On Wednesday, only about 500 million shares changed hands on the New York Stock Exchange. Thin trading volumes can often lead to volatility in stock prices.

U.S. stocks fell Tuesday after German Chancellor Angela Merkel and French President Nicolas Sarkozy spoke about Europe’s ongoing debt troubles, but offered little in the way of action.

Target Corp, Staples Inc and Dell Inc all reported earnings for last quarter that were above analysts’ forecasts.

Companies in the Standard & Poor’s 500 are on track to report higher profits for a ninth straight quarter.

But economic growth is weak around the world, and some economists worry that a second recession may becoming. That could pull down future results.

Target and Staples both gave profit forecasts that were above Wall Street’s expectations, but Dell cut its prediction for revenue growth this year.

The Dow Jones industrial average rose 95 points, or 0.8 per cent, to 11,501 in the first hour of trading overnight. The S&P 500 rose 14, or 1.2 per cent, to 1207. The Nasdaq composite rose 24, or 1 per cent, to 2548.

Stocks were up for the fourth day out of five. The market fell yesterday on concerns about Europe’s ability to contain its debt problems.

Computer maker Dell said yesterday its profit rose 63 per cent last quarter after businesses and government agencies bought more machines. But it also cited “a more uncertain demand environment” when it cut its forecast for annual revenue growth to a range of 1 per cent to 5 per cent. That’s down from an earlier growth forecast for 5 per cent to 9 per cent. Dell stock fell 6.4 per cent overnight.

Other companies are more optimistic. Retailer Target said it expects to earn between $US4.15 per share and $US4.30 per share this year. Analysts had expected $US4.14 per share, according to FactSet. Target also said its earnings last quarter rose 3.7 per cent on grocery sales.

Office products retailer Staples raised its profit forecast for the year after saying strong international sales pushed earnings up 36 per cent last quarter. Staples shares rose 1 per cent.

Deere also raised its forecast for full-year earnings. It now expects to earn $US2.7 billion ($2.58 billion) this fiscal year, up from a May forecast of $US2.65 billion. The maker of tractors and other heavy equipment said its profit rose 15 per cent last quarter on strong demand for farm equipment. Deere, though, fell 1.9 per cent.

Crude oil rose $2.02 per barrel to $US88.67. Energy stocks in the S&P 500 rose 1.5 per cent, the most among the 10 industries that make up the index.

Companies are making more money, but many have done so by raising prices to offset higher costs. Higher food prices helped push inflation at the wholesale level to 0.2 per cent in July, according to a government report overnight. But that is still well below inflation levels earlier this year when oil prices were spiking because of violence in the Middle East. In February, wholesale inflation was 1.4 per cent.

Stocks have been particularly volatile in August. Worries rose as the US government said it may default on its debt unless it was allowed to borrow more. The government just bt the deadline to avoid a default, but the partisanship in the debate came at a cost - Standard & Poor’s downgraded the US credit rating on August 5 by one notch to AA+ from the top AAA rating.

That triggered one of Wall Street’s wildest weeks: The Dow rose or fell by at least 400 points in each of the first four days of last week, the first time that has happened.

Official figures showing slower than expected wages growth helped calm inflationary expectations and also provided a boost for investors.

At 16:15 (AEST) the benchmark S&P/ASX200 index was 56.6 points, or 1.33 per cent, higher at 4,303.9, while the broader All Ordinaries index was 54.5 points, or 1.26 per cent. up at 4,371.8.

On the ASX 24, the September share price index futures contract was up 48 points at 4,276, with 54,777 contracts traded.

Macquarie Private Wealth director Lucinda Chan said Australian Bureau of Statistics’ wages data for the June quarter grew by a less than expected pace.

She said this showed an easing of inflationary pressures and made it more likely the Reserve Bank of Australia would keep interest rates on hold next month.

“That’s one reason why the market got a little bit excited today, plus we had some strong earnings from companies,” she said.

Ms Chan said that with world markets slowing and a resolution to the US and European debt crises still a long way off, any greater gains on the market would be limited.

“We lost a lot over the last week, a huge amount in the market. We’ve seen a bit of bargain-hunting today and that has lifted the market. We’ve recovered the losses we made yesterday,” Ms Chan said.

Shopping centre owner Westfield Group rose six cents to $8.20 despite posting a 32 per cent fall in half-year profit.

Among energy stocks, Woodside Petroleum gained 44 cents to $37.76 despite an 8.1 per cent dip in first half net profit. Fellow oil and gas producer Santos was up 21 cents at $12.14 and Oil Search was seven cents stronger at $6.48.

Among the miners, BHP Billiton gained 39 cents to $39.82 and Rio Tinto was $1.03, or 1.4 per cent, higher at $74.42.

The major banks closed higher, making up losses in early trade, with Westpac up 26 cents to $20.51 a day after posting a two per cent fall in third-quarter cash earnings due to slowing credit growth.

Building materials manufacturer Boral slid 19 cents to $3.69 despite revealing full year net profit of $167.7 million after the previous year’s loss but said the outlook for the US housing sector remained poor.

Transport group Brambles was up 29 cents at $6.93 after announcing plans to offload its information management subsidiary and use the proceeds to reduce debt and invest more than $US500 million ($478.65 million) on its pallets operations.

National Australia Bank was 15 cents up at $23.36. ANZ gained 23 cents to $20.58 and Commonwealth Bank was 57 cents higher at $47.40.

At 16:15 (AEST), the price of gold in Sydney was $US1,789.9 per fine ounce, up $US20.57 from Tuesday’s local close at $US1,769.33.

Shares in gold miner Newcrest Mining were up 39 cents at $39.09.

Preliminary national turnover was 2.08 billion shares worth $5.58 billion, with 641 stocks up, 373 down, and 371 were steady.

The leaders of the eurozone’s biggest economies, Germany and France, announced they will meet Tuesday to discuss solutions to Europe’s financial difficulties.French President Nicolas Sarkozy’s office said that the two will come up with “joint proposals” on the governance of the eurozone before the end of the summer. Chancellor Angela Merkel’s spokesman said the meeting would focus on suggestions for how to improve the zone’s economic policy and crisis management.

Bank of France head Christian Noyer blamed “unfounded rumors” for plunges in the shares of top banks, including Societe Generale and BNP Paribas, and said the country’s financial institutions were sound. The country’s market regulator warned of sanctions against anyone who fuels or profits from rumors that fed the sell-off

Noyer said that French banks’ first-half earnings “confirmed their solidity in a difficult economic environment” and that the banks’ capital cushions were healthy.

The stocks continued to drop until strong U.S. jobs data helped propell solid gains on Wall Street late in the European trading day. BNP Paribas closed up 0.3 percent and Societe Generale rose 3.7 percent.

The European Union’s markets supervisor said regulators were increasing surveillance of financial markets following the days of steep selloffs. Greece on Monday banned short-selling — profiting from bets on the decline in a share price — but no other national regulators have followed suit so far. Consob, Italy’s stock market watchdog, said it would meet on Friday morning before the markets open to decide whether or not to take measures about short-selling, which has been blamed for contributing to market volatility.

France is taking pains to assure markets that it won’t be the next to see its credit rating downgraded.

Sarkozy cut short his holiday Wednesday and ordered his ministers to come up with new budget cuts to ensure that France sticks to deficit-cutting targets.

All three leading credit rating agencies reaffirmed their triple-A assessment of France, and analysts said they could not identify a trigger for the market turmoil.

“There’s nothing behind it, it’s a market of malintentioned speculators trading on pure rumors,” said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.

After Societe Generale, France’s second-biggest bank, saw its share price drop nearly 15 percent Wednesday, the bank asked the French market regulator, the AMF, to investigate the rumors that it was on the ropes because of its heavy exposure to debt from troubled eurozone economies.

Societe Generale CEO Frederic Oudea called the rumors “totally unfounded” and “irrational.” Speaking on France-Info radio, he urged calm and insisted that the bank’s fundamentals are sound.

Oudea said Societe Generale had already accounted for its exposure to Greece’s debts in its second quarter earnings.

“S&P is not going to downgrade France any time soon. Nor are Moody’s or Fitch,” Gary Jenkins of Evolution Securities said. “Growth will be the key to the stability of the ratings for France, U.K and the U.S. over the next 12 months.”

He said there will be extra attention to France’s release of second-quarter GDP figures on Friday, and warned that France could suffer if it has to spend significant new money to bail out more struggling eurozone states.

France’s growth prospects are considerably better than those of Italy and Spain’s, but its economic expansion is slowing and it’s failed for years to reduce a deficit that stood at 7.1 percent last year. No other eurozone economy with a triple-A rating has a higher debt than France’s — around 85 percent of national income.

Adding to market worries, French presidential elections scheduled for the spring of 2012 may make it difficult for the government to implement further austerity measures at a time when the economy is slowing.

Elsewhere in Europe, Greece announced a rise in unemployment after a series of unpopular austerity measures aimed at dragging it out of debt that sparked troubles across the eurozone.

And Italy’s finance minister, Giulio Tremonti, told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget in 2013. The market turbulence has seen Italy’s borrowing costs in the markets spike up to uncomfortably high levels.

Futures on the Dow Jones Industrial Average DJ1U +2.98% fell 49 points to 10,676 at last check. Trading was very volatile and sentiment was fragile; Dow futures had been up more than 200 points earlier.Futures on the Standard & Poor’s 500 stock index SP1U +0.37% slipped 5.50 points to 1,118, while Nasdaq 100 futures ND1U +0.59% dropped 1.75 points to 2,083.25.

“Market jitters remain extremely high and are even taking on near-absurd proportions,” said analysts at Raiffeisen Research in a note.The blue-chip Dow industrials DJIA +3.31% sank 519.83 points, or 4.6%, on Wednesday — the third consecutive trading day when the benchmark has swung more than 400 points.

Asian equity markets ended mixed overnight. Japan’s Nikkei Stock Average fell 0.6%, while China’s Shanghai Composite index rose 1.3%.In Europe, stock markets turned lower in late-morning trading. Shares of French banks were hit once again, with Societe Generale FR:GLE +3.70% down 7.4% in Paris.

Cisco in spotlight

Shares of blue chip Cisco Systems CSCO +16.10% surged 12% ahead of the opening bell. The networking equipment firm reported a 36% drop in fourth-quarter net profit, but its adjusted earnings and revenue beat analyst forecasts.

In other corporate news, department-store operator Kohl’s Corp. KSS +7.38% reported Thursday second-quarter results and raised its annual earnings forecast to a range between $4.45 and $4.60 a share, up from $4.25 to $4.40 a share.

After the close of trading in U.S. stocks, technology firm Nvidia Corp. NVDA +6.57% will report second-quarter results.

Shares of AOL Inc. AOL +13.31% could be active after the company announced a stock-buyback program pegged at $250 million.

In the currency markets, the U.S. dollar was marginally higher against most other major currencies, with the dollar index DXY -0.14% gaining to 74.965. The greenback managed a narrow gain on the euro.

December gold futures GC1Z -1.90% fell $13.30 to $1,772 an ounce in electronic trading on Globex.

September oil futures CL1U +0.97% slipped 65 cents to $82.24 a barrel.

China’s Shanghai Composite Index CN:000001 -3.79% , South Korea’s Kospi KR:0100 -3.82% and Taiwan’s Taiex each fell 3.8% to finish at 2,526.82, 1,869.45 and 7,552.80, respectively.

Australia’s S&P/ASX 200 index AU:XJO -2.91% AU:XJO -2.91% gave up 2.9% to 3,986.10 and Japan’s Nikkei Stock Average JP:100000018 -2.18% closed down 2.2% at 9,097.56, while Hong Kong’s Hang Seng Index HK:HSI -2.18% shed 2.2% to finish at 20,490.57.

“Rising risk premium/risk aversion due to what’s going [on] in the U.S. and Europe“ was behind the sharp sell-off in China over the past few days, said Jim Chen, investment manager of Baring Asset Management’s Greater China Fund.

Monday’s performance marks another day of heavy losses in Asia. Last week, Taiwan’s Taiex sank more than 9% and the Kospi lost 8.9% in Seoul. Also last week, Japanese shares had dropped more than 5%, Hong Kong shares fell almost 7% and Australian shares lost in excess of 7%.

While the latest trigger for the tumble came from Standard & Poor’s downgrade of U.S. debt to AA+ from AAA, worries that European sovereign debt troubles were spreading have also grabbed investor attention for several weeks now. Read more on S&P downgrade.

The losses came even as financial and monetary officials from the Group of Seven major economies released a statement late Sunday, saying they were “committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth.” Officials from the Group of 20 also issued a similar statement Monday, without detailing specific actions. Read report on G-7 statement after S&P’s U.S. downgrade.

Meanwhile, the European Central Bank also said late Sunday that it “will actively implement” its bond-buying program, indicating it will likely buy Spanish and Italian government bonds in an effort to prevent sovereign-debt contagion taking hold in some of the region’s largest economies. Read more on ECB statement.

Banks, exporters hit

Banking, insurance and other financial stocks lost more ground during the session on Monday, with HSBC Holdings PLC HK:5 -1.51% UK:HSBA -1.85% HBC -2.47% falling 1.5% and Bank of China Ltd. HK:3988 -3.60% BACHY +0.19% sliding 3.6% in Hong Kong.

Sumitomo Mitsui Financial Group Inc. JP:8316 -2.24% SMFG +0.51% dropped 2.2% and Shinsei Bank Ltd. JP:8303 -3.26% SKLKF +9.01% fell 3.3% in Tokyo. KB Financial Group Inc. KB -1.39% skidded 7.5% in Seoul and Cathay Financial Holding Co. slumped 6.9% in Taipei.

As benchmark Nymex crude-oil futures traded around $84 a barrel with investors concerned about the outlook for demand, energy stocks lost ground, with JX Holdings Inc. JP:5020 -2.70% down 2.7% in Tokyo and Cnooc Ltd. HK:883 -3.99% CEO -4.89% down 4% in Hong Kong. PetroChina Co. PTR -0.52% HK:857 -3.09% shed 3.1% in Hong Kong as well as Shanghai.

Exporters and companies with a significant overseas presence were also pressured amid worries about the global economic outlook, with Honda Motor Co. JP:7267 -3.01% HMC +0.94% shares JP:7267 -3.01% off 3% in Tokyo and Kia Motors Corp. KIMTF +19.05% down 3.9% in South Korea.

Local property developers in Hong Kong fell after data showed that home sales over the weekend tumbled 23% from the same period last week, and on worries about easing property prices. Shares of New World Development Co. HK:17 -4.93% NDVLY +1.48% lost 4.9% and Sino Land Co. SNLAY -8.69% HK:83 -2.54% shed 2.5%.

S&P came in for significant criticism from US Treasury Secretary Timothy Geithner said the rating agency showed “terrible judgment” in lowering the US government’s credit rating, forcing S&P to defend its position on Monday.

Geithner said the agency’s decision showed a “stunning lack of knowledge” about the basic maths used to develop the government’s budget.

David Beers, global head of sovereign ratings at S&P, defended the rating agency’s position, despite the discovery of a $2 trillion error in the firm’s calculation of the projected debt to GDP ratio for the U.S.

“It is a complete mis-characterization on the Treasury’s part about what happened in that highly technical discussion,” Beers said. “These are large numbers…(but) even with these adjustments, the debt burden is rising so the substance of what we’re saying has not changed,” he told CNBC on Monday.

Warren Buffett, chairman of Berkshire Hathaway, however told CNBC there was no question that the United States’ credit rating was still triple-A, and that he was not changing his mind about US Treasurys based on S&P’s downgrade.

“If anything, it may change my opinion on S&P,” Buffet added.

However Jim Rogers, chairman of Rogers Holdings, told CNBC he believed It was “physically, humanly impossible for the U.S. to ever pay off its debt. They can roll it over and continue to play the charade, but the U.S. is bankrupt.”

Across the globe markets fell sharply in response to Friday evening’s announcement.

In Japan, the benchmark Nikkei average [.N225  9097.56  -202.32  (-2.18%)   ] closed down 2.2 percent to 9097.6 points, while the broader Topix ended lower at 2.3 percent to 782.9 points.

Markets across Europe also opened lower — down around 2 percent across the board — despite an announcement ahead of the opening of the markets from the European Central Bank (ECB) that it was entering the bond market to buy Italian and Spanish sovereign debt.  Unlike most European markets, Spanish and Italian indexes managed to hold onto gains.

The ECB issued a statement on Sunday welcoming fiscal reforms in Spain and Italy, and the support for a longer-term bond buying mechanism, the European Financial Stability Facility, by the French and German governments.

Traders told Reuters, ECB buying was focused on the 5-year sector of the curve, where Italian yields dropped 65 basis points to 4.85 percent, while the Spanish equivalent was 69 bps lower at 4.734 percent.

But Dow Jones reported the spread on French five year credit default swaps reaching record levels, widening by 12.5 basis points to 157, according to Markit.

However, Europe’s main markets fell in volatile trading with the FTSE, the DAX and the CAC40 all down between 1.5 and 2.5 percent.