Euro Regains 1.35, Spain Auctions Next, Gold Licks Wounds

Italian and Greece PMs start key meetings, UK public finances under for scrutiny as fears mount that austerity is biting too hard, French yields will be watched after yesterdays Moodys warning. EURUSD regains 1.35, nearing the targets in the latest Premium Trades.

Markets are starting to worry about the prospects for a 2012 rating downgrade of the after failure of the Super Committee to reach agreement on $1.2 trillion in automatic cuts due to be implemented in 2013. The Super Committee was supposed to finish work by Monday so that the Congressional Budget Office can finish the package before there is a vote on recommendations Wednesday.

Moodys added to risk aversion when it issued a note warning about a French rating downgrade indicating: "Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications".

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Markets will watch French 10 yr yields, currently at 3.47%, off last weeks 3.80% high (highest since July 2009). 3.47% corresponds to 1.56% in the France-Germany 10- yr spread, which hit a Eurozone-era of 1.90% last week.

Italy PM Mario Monti will meet EU President Van Rompuy and new Greek PM Lucas Papademos is set to meet Eurogroup chief Jean-Claude Juncker. In Greece, the debate remains over next Greek aid tranche.

Spanish auctions of 3 and 6 month bills this morning will be closely watched 2 days after the new conservative government has taken over.

UKs public finances due at 9:30 GMT expected to show a deficit of -GBP 900 mln eyed from GBP 19.88 bln. UK public finances data for Oct, seen improving to GBP 3.8bn from . .

Later in the US, Q3 GDP seen unchanged at 2.5%, followed by the minutes release of the FOMCs latest expected to highlight the three way split on the committee with respect to monetary policy.