By Gabriela Baczynska and Andrew Gray

BRUSSELS (Reuters) - European Union heavyweights are set for a showdown with Hungary this week over giving Ukraine billions of euros in aid and the chance to start membership negotiations, both key objectives for Kyiv as its war with Russia stalls.   

European Union leaders will meet for a summit in Brussels on Thursday and Friday to decide on proposals to grant 50 billion euros of economic support to Kyiv, assign a further 20 billion euros to Ukraine's military and launch accession talks.

Securing fresh financial assistance from Europe is critical as doubts mount over future U.S. support for Kyiv, which relies on Western financial aid for its war with Russia.

    But Hungarian Prime Minister Viktor Orban, who boasts about his ties with Russian President Vladimir Putin, has threatened to veto the aid and enlargement talks at the Dec.14-15 summit.

    All three decisions - as well as a fourth one on what would be the EU's 12 package of sanctions against Russia since the invasion begun in February, 2022 - require unanimous backing of all the bloc's 27 countries.

    "We are in a key moment," a senior EU official said, in referring to a stalemate on the battlefield and the U.S. Congress not having approved President Joe Biden's $60 billion aid package for Ukraine.

"It's very important that... the European Union will show clear and full support to Ukraine," the official said under condition of anonymity. "That message wouldn't be only for Moscow, it would also be a message for Washington, it would also be a message for Kyiv."

   Europe's own credibility is also at stake with the bloc having previously vowed to stand by Ukraine as long as it takes.

"We count on positive decisions," Ukraine President Volodymyr Zelenskiy said on Sunday evening. "Europe must defend its values and unity decisively."

    WHAT ORBAN WANTS

    Orban is not new to causing a stir in the European Union.

    Hungary has watered down sanctions against Russia and last December vetoed a deal to grant Ukraine 18 billion euros in 2023.

It eventually allowed that assistance through after haggling for days over EU aid to Hungary blocked over concerns of democratic backsliding under Orban.

As the EU finds itself again seeking to win Orban's support for Ukraine, the executive European Commission is expected to unlock Budapest's access to 10 billion euros this week.

    In opposing opening membership negotiations with Kyiv, Orban initially complained about Ukraine's treatment of the country's Hungarian minority. He has since said Ukraine was too corrupt and not ready to join the EU.

    Instead of deciding on new aid to Ukraine, he demanded the bloc hold a "strategic discussion" on its support for Kyiv.

Diplomats said related bids by Georgia and Bosnia to advance their hopes to join the EU - both backed by Orban - would fall through if Hungary vetoes Ukraine.

"Our feeling was that Orban always knew how far he could go and that he would know exactly when it was time to climb down the tree," said a second senior EU diplomat.

Those expecting Orban to budge described a possible compromise throwing the start on negotiations with Ukraine to March under final conditions. Others, however, worry that this time the Hungarian leader may not be persuaded.

Orban will be up against German Chancellor Olaf Scholz, among others, who has said Berlin backs starting negotiations for Kyiv to join the EU someday.

    FINANCIAL AND MILITARY AID

    While Orban may be the loudest critic of extending more support to Ukraine, a ruling last month by Germany's constitutional court further complicated the EU talks by blowing a massive hole in its richest member's budget.

Should Hungary veto assigning 50 billion euros to Ukraine through the bloc's shared budget, the 26 other EU countries could extend their contributions bilaterally to Kyiv - a more complicated and expensive way.

    Uncertainty also hangs over the future of the EU's military aid to Ukraine, where Russia now controls nearly a fifth of territory.

    A proposal to use an EU-run military fund – the European Peace Facility (EPF) – to give Ukraine 20 billion euros in arms and other support over the next four years has run into resistance from Germany.

Some EU members are pushing for the summit at least to pledge five billion euros to Ukraine via EPF next year, a plan EU foreign ministers will discuss on Monday with their Ukrainian counterpart.

    Despite the gloomy outlook, some Brussels diplomats believe the bloc will avoid the worst-case scenario and deliver on some of the promises made to Ukraine.

    "Will it be difficult? Yes. Will it be extremely difficult? Most likely. Will there be blood in the air at some point? Probably," said a second senior EU official. "But I continue to think it's possible to find solutions."

By Yoruk Bahceli

AMSTERDAM (Reuters) - Investors seeking to cash in on a policy pivot from the European Central Bank will watch Thursday's meeting for any hint they should sit tight on bets for swift interest rate cuts next year.

Euro zone inflation is tumbling and the economy may be in a shallow recession, so traders don't buy the ECB's mantra that rates will stay high for some time.

"The biggest challenge will be to try and navigate around the amount of cuts and the speed of the cuts that's been priced in," said Ed Hutchings, head of rates at Aviva (LON:AV) Investors.

Here are five key questions for markets.

1/ What can we expect this week?

The ECB is likely to say it is pleased that inflation, which exceeded 10% last year, is nearing its 2% target.

"They may even clearly tone down the language on the possibility of more hikes. So to the market they'd be saying: this is likely it, this is the peak," said Jens Eisenschmidt, a former ECB economist and now Morgan Stanley's Europe chief economist.

But don't expect ECB chief Christine Lagarde to sound dovish beyond that; analysts reckon she will not want to fuel further expectations of policy easing.

2/ Is the inflation fight over?

The signs are certainly positive.

Euro zone inflation tumbled to 2.4% in November, undershooting expectations for a third straight month, with even the core measure excluding volatile food and energy prices falling sharply to 3.6%.

"The inflation picture is much more favourable than the ECB has in its forecasts," said Carmignac chief economist Raphael Gallardo.

Inflation is expected to rise again as subsidies shielding consumers from high energy prices expire, however, while wage growth remains elevated. So the ECB will be reluctant to declare victory just yet.

3/ Who's right on rates - traders or the ECB?

Traders now see over 130 basis points of ECB rate cuts next year, starting in March. When the ECB last met on Oct. 26, they priced in just 70 bps of cuts commencing in July.

Even board member Isabel Schnabel, a renowned hawk, has added fuel to the fire, telling Reuters the ECB can take further hikes off the table and should not guide for steady rates through mid-2024.

But wary of inflation risks, the ECB is all but certain to avoid endorsing market pricing, and many economists think March is too early for cuts.

"I expect a cautious, conservative, and moderately hawkish counter-reaction to the recent dovish market repricing," said UBS chief European economist Reinhard Cluse.

4/ What's happening to PEPP?

Lagarde recently said the ECB will "probably" discuss ending reinvestments under its 1.7 trillion euro Pandemic Emergency Purchase Programme (PEPP) earlier than the current end-2024 deadline, so the topic could come up this week.

Italian bonds, the main beneficiary, outperformed in November on rate cut hopes, sharply narrowing the risk premium they pay over Germany. But that has also boosted the case for bringing forward an end to reinvestments, analysts said.

Were the ECB to halt the reinvestments in June, Italy would miss out on some 15 billion euros of cash, compared to over 350 billion euros of debt it will sell next year, Pictet Wealth Management's head of macroeconomic research Frederik Ducrozet, estimates.

For Ducrozet such a small amount isn't worth risking volatility in markets right now. BNP Paribas (OTC:BNPQY) nevertheless expects the ECB to start a formal discussion on ending reinvestments.

"What the decision may reveal is how much influence the hawks still have," Ducrozet said.

5/ What will new ECB projections show?

Analysts largely expect the ECB to lower its growth and inflation projections for next year from September estimates, boosting the case for easing hawkish guidance, and inflation to be around 2% in 2026.

With inflation undershooting substantially, the ECB's fresh staff projections, which will include forecasts for 2026 for the first time, are in focus.

By Noel Randewich and Amruta Khandekar

(Reuters) - U.S. stocks closed higher on FridayA, with the S&P 500 and Nasdaq notching their highest closing levels since early 2022 after a robust U.S. jobs report fueled investor optimism about a soft landing for the economy.

Investors pared bets that the Federal Reserve will cut interest rates in March after a Labor Department report showed nonfarm payrolls increased by 199,000 jobs in November, compared with an estimated increase of 180,000.

The unemployment rate slipped to 3.7%, while average earnings edged up to 0.4% on a monthly basis, compared with forecasts of 0.3% growth.

Interest rate futures show traders widely expect the Federal Reserve to hold interest rates steady at its meeting next week, according to the CME FedWatch tool. However, futures prices now imply traders mostly expect the Fed to start cutting rates in May, two months later than the March meeting many investors had been betting on in recent days.

"The drop in the unemployment rate in particular will assuage any concerns of a recession, and with payrolls and earnings both rising, it keeps the ‘soft landing’ narrative very much in the ascendancy," said Stuart Cole, head macro economist at Equiti Capital in London.

    "The report will likely see some of those forecasting an early Fed cut next year re-evaluating their positions," Cole said.

The S&P 500 climbed 0.41% to end the session at 4,604.37 points.

The Nasdaq gained 0.45% to 14,403.97 points, while Dow Jones Industrial Average rose 0.36% to 36,247.87 points.

The S&P 500's close was its highest since March 2022, while the Nasdaq's close was it highest since April 2022.

For the week, the S&P 500 rose 0.21%, the sixth time in a row it has logged a weekly gain, its longest streak since November 2019.

The Dow edged up 0.01% for the week, also its sixth straight weekly gain, its longest run of positive weeks since February 2019.

The Nasdaq gained 0.69% for the week.

The S&P 500 remains down 4% from its record high close in late 2021 with the Nasdaq still down 10% from its record high then.

Chipmaker Nvidia (NASDAQ:NVDA) and Facebook-owner Meta Platforms (NASDAQ:META) each gained nearly 2% in Friday's session.

Shares of Google-parent Alphabet (NASDAQ:GOOGL) dipped 1.4%, giving up gains after an AI-led rally in the previous session.

Other data showed U.S. consumer sentiment perked up much more than expected in December, snapping four straight months of declines.

Robust quarterly reports and optimism that the Fed has finished raising rates have fueled steady gains in the U.S. stock market since late October.

Honeywell (NASDAQ:HON) dipped 1.6% after the industrial firm said it would buy air conditioner maker Carrier Global (NYSE:CARR)'s security business for $4.95 billion. Carrier's shares rose almost 4%.

Paramount Global soared 12% after reports of takeover interest in the media company. Peer Warner Bros Discovery (NASDAQ:WBD) jumped 6.6%.

DocuSign (NASDAQ:DOCU) rallied 4.8% after the e-signature product provider raised its annual forecast for revenue.

Advancing issues outnumbered falling ones within the S&P 500 by a 1.5-to-one ratio.

The S&P 500 posted 33 new highs and no new lows; the Nasdaq recorded 104 new highs and 90 new lows.

Volume on U.S. exchanges was 11.0 billion shares traded, in line with the previous 20 sessions.

(Reuters) - New York-based stock exchange Nasdaq Inc agreed to pay a $4 million settlement to the U.S. Department of Treasury over apparent violations of sanctions against Iran by a former Nasdaq unit, the department's Office of Foreign Assets Control (OFAC) said on Friday.

Nasdaq OMX Armenia provided services to Iran and Iran's state-owned Bank Mellat, it said.

"The settlement amount reflects OFAC's determination that Nasdaq's conduct was non-egregious and voluntarily self-disclosed," OFAC said.

Nasdaq said in an emailed statement that the settlement acknowledged mitigating factors, including Nasdaq's voluntary disclosure of the transactions in 2014 and its sale of the Armenian subsidiary in 2018.

Nasdaq acquired the Armenian Stock Exchange, subsequently renamed Nasdaq OMX Armenia, when it acquired Swedish financial company OMX AB in February 2008.

By Steven Scheer

JERUSALEM (Reuters) -Israel registered a budget deficit of 16.6 billion shekels ($4.5 billion) in November, the Finance Ministry said on Sunday, citing a jump in expenses to fund Israel's war with Hamas militants in the Gaza Strip.

As a percentage of GDP, the deficit over the previous 12 months rose to 3.4% in November - 62.3 billion shekels - from 2.6% in October, it said.

A ministry source said the deficit for 2023 would finish at about 4% of GDP, above a target of 0.9%, or 16.9 billion shekels, in the budget approved by lawmakers in May.

The ministry noted that revenue fell by 15.6% last month, partly because of tax deferments resulting from the war that began on Oct. 7.

November revenue was 30.3 billion shekels, the lowest monthly level this year. For the first 11 months of the year, revenue reached 401.5 billion shekels, 6.2% lower than the same period last year.

Overall, the war is expected to weigh on growth in 2023 and 2024. The ministry and central bank project growth of 2% this year and 1.6% and 2% respectively in 2024.

Expenses reached nearly 47 billion shekels, with about 6 billion attributable to the war, helping to push up January-November spending by 11.5% to 445.3 billion shekels.

Israel's deficit in October was 22.9 billion shekels and in November 2022 it was 1.7 billion shekels.

Last week parliament gave its initial nod to a war budget that would add more than 30 billion shekels to spending on the war for the rest of 2023. The plan still requires final approval.

($1 = 3.7033 shekels)

BEIJING (Reuters) -China's consumer prices fell the fastest in three years in November while factory-gate deflation deepened, indicating rising deflationary pressures as weak domestic demand casts doubt over the economic recovery.

The consumer price index (CPI) dropped 0.5% both from a year earlier and compared with October, data from the National Bureau of Statistics (NBS) showed on Saturday.

That was deeper than the median forecasts in a Reuters poll of 0.1% declines both year-on-year and month-on-month. The year-on-year CPI decline was the steepest since November 2020.

The numbers add to recent mixed trade data and manufacturing surveys that have kept alive calls for further policy support to shore up growth.

Xu Tianchen, senior economist at the Economist Intelligence Unit, said the data would be alarming for policymakers and cited three main factors behind it: falling global energy prices, the fading of the winter travel boom and a chronic supply glut.

"Downward pressure will continue to rise in 2024 as developers and local governments continue to deleverage and as global growth is expected to slow," Xu said.

Year-on-year core inflation, excluding food and fuel prices, was 0.6%, the same as October.

Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:JLL), said the weak core CPI reading was a warning about persistently sluggish demand, which should be a policy priority for China if it is to deliver more sustainable and balanced growth.

Although consumer prices in the world's second-biggest economy have been teetering on the edge of deflation in recent months, China's central bank Governor Pan Gongsheng said last week inflation was expected to be "going upwards".

The producer price index (PPI) fell 3.0% year-on-year against a 2.6% drop in October, marking the 14th straight month of decline and the quickest since August. Economists had predicted a 2.8% fall in November.

China's economy has grappled with multiple headwinds this year, including mounting local government debt, an ailing housing market and tepid demand at home and abroad. Chinese consumers especially have been tightening their purse strings, wary of uncertainties in the elusive economic recovery.

Moody's (NYSE:MCO) on Tuesday issued a downgrade warning on China's credit rating, saying costs to bail out local governments and state firms and to control the property crisis would weigh on the economy.

China's finance ministry called the decision disappointing, saying the economy would rebound and risks were controllable.

The authorities will spur domestic demand and enhance economic recovery in 2024, the Politburo, a top decision-making body of the ruling Communist Party, was quoted by state media as saying on Friday.

Markets are awaiting more government stimulus at the annual agenda-setting "Central Economic Work Conference" later this month.

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth likely picked up in November as thousands of automobile workers and actors returned after strikes, but the underlying trend will probably point to a cooling labor market.

The Labor Department's closely watched employment report on Friday, which is also expected to show wages increasing moderately and the unemployment rate unchanged at nearly a two-year high of 3.9%, will cement views that the Federal Reserve is done raising interest rates this cycle.

But with employment gains forecast to remain well above the 100,000 jobs per month needed to keep up with growth in the working age population, it could pour cold water on financial market expectations of the U.S. central bank pivoting to cutting rates as soon as the first quarter of 2024.

The Fed is expected to keep rates unchanged next Wednesday. It has raised its policy rate by 525 basis points to the current 5.25%-5.50% range, since March 2022.

"We're looking for more evidence that restrictive monetary policy and tight credit conditions are having the desired effect, dampening inflationary pressures, not only in the economy more broadly, but also the labor market," said James Knightley, chief international economist at ING in New York.

"I don't think the Fed will be signaling a desire to cut on the scale that the market is looking to price right now, but they will be pretty happy with the evidence of the cooling jobs market."

Nonfarm payrolls likely increased by 180,000 jobs last month after rising 150,000 in October, according to a Reuters survey of economists. About 25,300 members of the United Auto Workers (UAW) union ended their strikes against Detroit's "Big Three" car makers on Oct. 31, which depressed manufacturing payrolls that month, government data showed.

At least 5,000 UAW members remain on strike, the majority of them at Mack Trucks. Payrolls also likely got a lift from 16,000 members of the SAG-AFTRA actors union going back to work.

Still, employment gains would be less than the monthly average of 238,800 jobs this year. Demand for workers is moderating as the hefty rate hikes from the Fed curb demand in the broader economy. The government reported this week that there were 1.34 job openings for every unemployed person in October, the lowest since August 2021.

There has also been anecdotal evidence of slowing hiring, with the Fed's Beige Book report last week describing demand for labor as having "continued to ease" and "most districts reported flat to modest increases in overall employment" from early October through mid-November.

Temporary help, a harbinger of future hiring, has declined for much of this year. The average workweek has also dropped from 34.6 hours in January to 34.3 hours in October. It is expected to have been unchanged at that level in November.

RISING LABOR POOL

But not every economist agrees that the labor market is softening, arguing that significant portions of the economy, especially in the service sector, remain understaffed.

Indeed, an Institute for Supply Management survey this week showed services industry businesses in November reporting "issues" backfilling vacancies caused by normal attrition. There were also comments that "the labor market remains very competitive" and about "trying to get to full staff levels."

"We're not convinced that the labor market has really slowed abruptly here," said Dean Maki, chief economist at Point72 Asset Management in Stamford, Connecticut. "The underlying trend in job growth remains pretty healthy."

The unemployment rate has risen from a 53-year low of 3.4% in April. The increase, however, has been driven by a rise in labor supply rather than companies laying off workers. Economists said there was a risk that the jobless rate could hit 4.0% in November, but urged against interpreting the rise as a sign of deteriorating labor market conditions.

"More people are coming into the labor force, and they're counted as unemployed when they come in," said Dan North, senior economist at Allianz (ETR:ALVG) Trade North America. "It's not companies firing people. So, it's not the usual dynamic that would make one concerned."

The expanding labor pool is slowing wage growth, boosting the Fed's efforts to lower inflation to its 2% target.

Average hourly earnings are forecast climbing 0.3% after gaining 0.2% in October. That would lower the annual increase in wages to 4.0%, which would the smallest advance since June 2021, after rising 4.1% in October.

Moderate wage gains would add to recent data showing inflation ebbing in October.

While that could contribute to crimping consumer spending this quarter and beyond, economists do not expect a recession, but rather a period of tepid growth. Most did not see the economy shedding jobs until the second quarter of 2024.

"We may have some quarters of virtually flat growth, overall, very very slow growth for the whole year," said North.

A look at the day ahead in European and global markets from Tom Westbrook

Nine of the G10 central banks are expected to cut interest rates next year. Not Japan.

Bank of Japan Governor Kazuo Ueda's open discussion of a difficult policy year ahead and of possible paths out of negative interest rates has jolted short sellers out of the yen, afraid that the long-awaited yen rally may have begun.

The yen is up four weeks in a row for the first time since March. It steadied in Tokyo trade on Friday, perhaps since data showed the economy slowed more sharply than first thought in the third quarter, which makes the next policy steps more complicated.

Japanese government bonds have been heavily sold, tugging global yields higher. The Nikkei dropped to a one-month low.

The consequences of above-zero rates in Japan, and particularly the possibility the BOJ will be hiking while the rest of the world is cutting, could be huge since it may trigger an unwinding of carry trades and a rearrangement of the flow of Japanese capital.

The BOJ next meets on Dec. 19. Before then the ECB, Bank of England and Fed will all meet, with markets expecting rates to stay on hold. U.S. non-farm payrolls figures due later on Friday round out the week and will set the tone for the policymakers.

An upside surprise in the jobs numbers would probably generate the most turbulence in markets, since a handful of recent indicators - pointing to a cooling labour market and slowing inflation - were behind a powerful bond rally in anticipation of rate cuts.

The European calendar is fairly bare on Friday.

Elsewhere in Asia, India's central bank kept its key lending rate on hold, as expected. South Korea's National Pension Service and central bank are in talks to extend their foreign exchange swap programme, sources with direct knowledge of the matter told Reuters, and the won rose sharply.

Shares in Australian gas producer Santos rose 6% and Woodside (OTC:WOPEY) stock fell 0.5% after the companies confirmed speculation they were in preliminary merger talks.

Key developments that could influence markets on Friday:

Economics: Final German CPI, U.S. non-farm payrolls

By David Milliken

LONDON (Reuters) - Starting salaries for newly appointed employees in Britain rose at the slowest pace since March 2021 last month, according to industry data that offered some comfort to the Bank of England in its fight against inflation pressures.

The Recruitment and Employment Confederation monthly survey has pointed towards a cooling in Britain's hot hiring market for much of this year although it has been slow to translate into broader official labour force data.

The BoE is keeping a close watch on labour market trends as it fears shortages of workers and skills mismatches since Brexit and the COVID-19 pandemic will make it hard to return inflation - currently 4.6% - to its 2% target.

The BoE is expected to keep interest rates at a 15-year high next week and restate that it is not close to cutting them.

Official data showed average pay excluding bonuses grew at an annual rate of 7.7% in the third quarter of 2023, only just off a previous record high.

By contrast, the REC survey showed a marked slowdown in the growth of starting salaries and pay rates for temporary staff in November. The latter increased at the weakest pace since February 2021.

"Businesses want to plan for the year ahead, but the prospect of faltering UK economic growth means the certainty they need isn't there. This is now impacting starting salaries," said Claire Warnes, a partner at KPMG which sponsors the survey.

The BoE predicts Britain's economy will record zero growth in 2024 and other forecasting bodies are not much more optimistic.

REC said job vacancies fell last month for only the second time since February 2021 while the number of job seekers rose by the most since December 2020. Recruiters were "widely linking this to redundancies and workers concerned about their current job security", it added.

The survey was based on responses from 400 recruitment agencies collected from Nov. 9 to Nov. 24.

By Noel Randewich and Shristi Achar A

(Reuters) - The Nasdaq ended sharply higher on Thursday after Alphabet (NASDAQ:GOOGL) and Advanced Micro Devices (NASDAQ:AMD) sparked a megacap rally on fresh optimism about artificial intelligence.

Shares of Alphabet jumped 5.3% as analysts cheered the launch of the Google-parent's newest AI model, while AMD soared nearly 10% after the company estimated the potential market for its data center AI chips could reach $45 billion this year.

Other heavyweight tech-related stocks also gained, with Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META) rising over 2%, Amazon (NASDAQ:AMZN) up 1.6% and Apple (NASDAQ:AAPL) 1% higher.

The Philadelphia semiconductor index jumped 2.8%, increasing its 2023 gain to 48%, much of that fueled by bets about the future of AI.

"Today it's an AMD-Google rally. There's a contagion effect across the market. Everyone wants to get on the bandwagon," said Jay Hatfield, CEO of Infrastructure Capital Management in New York.

"We're kind of in this weird market, a tag-team market, where one day tech leads, and then the next day value and the broad market lead."

The S&P 500 has steadily climbed since the end of October on expectations the Federal Reserve has finished its campaign of interest rate hikes and that it could begin cutting rates in March.

The S&P 500 climbed 0.80% to end the session at 4,585.59 points, with 1.8 stocks in the index gaining for each one that fell.

The most traded stock in the S&P 500 was Tesla (NASDAQ:TSLA), with $25.7 billion worth of shares changing hands during the session. The shares rose 1.37%.

The Nasdaq Composite jumped 1.37% to 14,339.99 points, while Dow Jones Industrial Average rose 0.18% to 36,117.57 points.

Volume on U.S. exchanges was relatively heavy, with 11.2 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.

Traders have almost fully priced in the likelihood of the Fed keeping rates unchanged at its meeting next week.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased less than expected last week to a seasonally adjusted 220,000 for the week.

A Labor Department jobs report due on Friday could hint at how quickly the U.S. economy is softening and may sway expectations about when the Fed is likely to begin cutting rates. Non-farm payrolls are expected to have increased by 180,000 jobs last month after rising by 150,000 in October.

Interest rate futures imply a nearly 64% chance of a rate cut as soon as March, according to the CME Group's (NASDAQ:CME) FedWatch tool.

Limiting gains in the Dow, shares of Merck fell 1.7% after the drugmaker's immunotherapy combination failed in a lung cancer study.