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Yen climbs, gold rises as traders turn defensive

London - A cautious tone spread through financial markets as the last full week trading in 2016 began. The yen gained with gold, and defensive stocks climbed in Europe, bucking wider losses in shares.

The dollar retreated versus the yen as traders took stock following a six-week rally in the currency before a Bank of Japan policy review on Tuesday.

The Stoxx 600 Index edged lower after reaching the highest point of 2016 on Friday, and Banca Monte dei Paschi di Siena headed for the biggest decline in more than a week ahead of a share issue. Oil gained, extending a climb from last week amid speculation an increase in maritime tensions could crimp deliveries. Gold headed for the first back-to-back advance in three weeks and industrial metals retreated.

Traders appear to be ready to lock in gains in the greenback, with the Bloomberg Dollar Spot Index heading for its best quarter since 2008 following the election of Donald Trump and the US Federal Reserve’s decision to boost interest rates and signal a steeper path of increases in 2017 last week.

Volumes are thinning before the December holiday season and end of the year, with trading in German bund futures about half the average for the past five days. Japan’s policy decision on Tuesday is the last Group of Seven central bank meeting for 2016.

“People are pulling in their horns a bit coming into year end and getting ready to reconsider when they come out of holiday period,” said Simon Derrick, chief currency strategist at Bank of New York Mellon in London. “We have a couple of big events coming up in January and people need to reassess how they think things will play out.”

Stocks

The Stoxx Europe 600 Index fell 0.1% at 13:20, with miners leading declines. In a reversal of the recent rotation into cyclical shares, defensive stocks including utilities, real estate and technology firms rose.

The volume of Stoxx 600 shares traded on Monday was about 30% lower than the 30-day average, data compiled by Bloomberg show.  Banca Monte dei Paschi di Siena fell 8.6% after the lender said it will begin selling shares to institutional investors this week as it aims to complete raising €5bn by the end of the year to avoid a rescue by the Italian government.

Currencies

The dollar declined 0.5% to ¥117.40, after gaining for the past six weeks. A broader Bloomberg gauge of the dollar has little changed, after strengthening 7.2% this quarter.

Bonds

Yields on 10-year Treasury notes declined one basis point to 2.58% after touching the highest level since September 2014 on Thursday.

German bonds were little changed, while yield on Spanish 10-year securities fell three basis points to 1.39%. China’s 10-year sovereign yield rose five basis points to 3.40%.

The yield surged 25 basis points last week, to 3.35%, as hawkish comments from the Federal Reserve and waning liquidity weighed on bond prices.

Commodities

Oil extended gains above $52 a barrel as a planned production boost from Libya stalled, while OPEC’s November agreement to curtail output continued to support prices.

Futures climbed as much as 1.2% in New York after rising 2% on Friday. Gold advanced for a second day as the dollar weakened. Bullion for immediate delivery rose as much as 0.7% to $1 142.40/oz. Zinc and copper fell as base metals retreated.

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