GLOBAL MARKETS-Euro zone worries send shares lower

by on September 26, 2012 7:35 am GMT

Wed Sep 26, 2012 3:35am EDT

* Euro dips to near two-week low as austerity protests grow

* European stocks follow U.S. and Asian markets lower

* Spanish and Italian bond yields jump

LONDON, Sept 26 (Reuters) – European shares fell sharply and
the single currency hit a two-week low on Wednesday as popular
opposition within the euro zone to budget austerity measures
unnerved investors already worried about a weak global growth

The market’s focus was on Spain and Greece: protesters
clashed with police in Madrid on Tuesday as the government
prepared to unveil its 2013 budget on Thursday; and Greeks held
a general strike as ministers sought to renegotiate a bailout.

The worries over a worsening in the euro zone’s financial
crisis have contributed to a sharp rise in volatility on equity
markets, leading to the worst day since June for the S&P 500
index on Tuesday and subsequent falls across Asia.

“With the demonstrations in Madrid on Tuesday, the euro zone
crisis is intensifying again, and this had an immediate impact
on U.S. indexes last night,” FXCM analyst Nicolas Cheron said.

Also fuelling negative sentiment, Philadelphia Fed President
Charles Plosser said on Tuesday that the Fed’s latest monetary
stimulus will not do much to boost economic growth or lower
unemployment and raises the risk of longer-run inflation.

As a result the MSCI world equity index was
down 0.7 percent at 332.70 points with Europe’s blue chip STOXX
50 opening one percent lower, led by falls in
Spanish, Italian and French markets.

The single currency lost 0.3 percent to $1.2863,
having dipped to $1.2856 at one point, its lowest level in two

Borrowing costs for Italy and Spain were also rising sharply
after Italian Prime Minister Mario Monti said he would not run
in an election due next year. Spain’s prime minister, Mariano
Rajoy, also said he would seek an international rescue package –
but only if debt financing costs remained too high for too long.

Italian 10-year bond yields were up 9 basis points to 5.2
percent, and equivalent Spanish yields rose 12
basis points to 5.89 percent.