GLOBAL MARKETS-Shares fall on intensifying worry over Spain

by on July 25, 2012 12:34 am BST

Tue Jul 24, 2012 8:34pm EDT

* MSCI Asia ex-Japan falls 0.6 pct, Nikkei opens down 0.9

* Euro near 2-year low versus dollar

* Asian credit a tad weaker

By Chikako Mogi

TOKYO, July 25 (Reuters) – Asian shares fell and the euro
was stuck near multi-year lows against major currencies on
Wednesday as soaring borrowing costs deepened worries Spain
might need a bailout, while Greece’s finances appeared to fall
short of terms conditional to its aid.

MSCI’s broadest index of Asia-Pacific shares outside Japan
fell 0.6 percent after managing a small gain on
Tuesday. The index tumbled 2.4 percent on Monday for its worst
one-day performance in about two months.

Japan’s Nikkei stock average opened down 0.9

Risks of Spain requiring a huge financial assistance for its
indebted regions, as well as banks saddled with bad loans,
fanned concerns of a contagion to other fiscally challenged
countries, sending Italy’s benchmark stock market down to its
lowest level since the euro’s launch on Tuesday.

Benchmark 10-year Treasury notes hit a record
low of 1.3824 percent in Asia early on Wednesday, while the
10-year Spanish government bond yield < stood near its euro-era high of 7.6 percent.

Spain paid the second highest yield on short-term debt since
the birth of the euro at an auction of three- and six-month
bills on Tuesday, indicating difficulties in future debt sales.

Spain’s five-year bond yield rose above 10-year yields and
short-term yields rose above longer-term yields, stoking fears
of an approaching credit event. Similar moves eventually saw an
inversion of yield curves in Greece and Portugal before they
sought international help for their debt crisis.

“With so much risk to go around, markets have been making
sharper and sharper distinctions between ‘safe haven’ and
‘risky’ assets,” said Michael Gavin, head of global macro and
emerging market strategy at Barclays Capital in a report.

“As an imperfect but reasonably close substitute for
extremely scarce safe-haven assets such as treasuries, gilts,
and JGBs, it seems to us that high-quality corporate (and EM
sovereign) credit stands to benefit from the existing financial
context,” he said.

Asian credit markets were sluggish, widening the spread on
the iTraxx Asia ex-Japan investment-grade index by
2 basis points. The spread has been resilient against deeper
losses in other riskier assets over the past month, staying in a
160-173 bps range and below the widest of the year 210 bps.

U.S. stocks fell on concerns the euro zone’s debt crisis was
hampering earnings, with disappointing results from Apple
pushing its shares down 4.8 percent in extended-hours
trading, and on data showing U.S. manufacturing activity in July
expanded at its slowest pace since late 2010.

But U.S. equities got a late lift after the Wall Street
Journal said Federal Reserve officials were moving closer to
taking new steps to spur activity and hiring. Top Fed officials
recently have spelled out what measures they might take,
including Chairman Ben Bernanke in a speech last week.

“This is in line with our economist’s expectations and we
expect that the market moving towards this view to lead to a
reversal of the USD’s recent rally,” BNP Paribas analysts wrote
in a client note.

The euro was at $1.2064, near a 25-month low of
$1.2042 hit on Tuesday, and at 94.27 yen, just a tad
above 94.12 yen touched on Tuesday, its lowest since November

The euro remained pressured due to uncertainty over Greece,
as it held meetings with global lenders to assess the terms of
financial assistance needed to keep it afloat and retain its
euro zone membership.

Twice bailed-out Greece would be found to be way off track
by global lenders assessing the country and further debt
restructuring is likely to be necessary, three EU officials said
on Tuesday.

A leading member of German Chancellor Angela Merkel’s party
said on Tuesday he thought a second round of debt forgiveness
was a potential option should Athens be unable to fulfil terms
of its bailout package.

As concerns over a fully-fledged Spanish bailout mount,
France’s finance ministry said finance ministers from France and
Spain will meet in Paris on Wednesday. Spain said on Tuesday
that Italy and France backed its call for the swift
implementation of decisions taken at the last EU summit.