GLOBAL MARKETS-Shares slip as Spanish optimism short lived

by on September 28, 2012 12:22 pm BST

Fri Sep 28, 2012 8:22am EDT

* Euro STOXX 50 down 0.8 percent as Spain sentiment wears
    * Spanish bank audit, French budget in focus
    * Euro up 0.1 pct vs dlr, dlr broadly flat
    * Oil, gold rise

    By Marc Jones
    LONDON, Sept 28 (Reuters) - Spain's borrowing costs rose
back above 6 percent and European shares dropped on Friday, as
the upbeat reaction to Madrid's new debt cutting plans gave way
to anxiety over its troubled banks, France's finances and
faltering global growth.
    The euro zone blue-chip Euro STOXX 50 index,
which has fallen 8.8 percent from a 6-month high hit in
mid-September, ceded early gains to stand down almost 1 percent
at 1145 GMT.
    Global stocks were pulled to near flat.
Madrid's IBEX led the falls down 1.3 percent, as the
early lift from Spain's new round of spending cuts, which had
also boosted U.S. and Asian markets overnight, collapsed.
    "We had some boost overnight from Spain but at the moment we
are looking to the U.S. data later," said Rabobank strategist
Philip Marey, adding that recent global data had not been
promising. "Although the markets had a lift from the ECB and the
Fed decisions, everything we have seen this week has not been
    Spain, too, will remain in focus. The results of an
independent audit of the country's banks will be published later
in the day, while Moody's Investors Service is expected to
finish a rating review which may cost Madrid its sovereign
investment grade status.
    France is also under the microscope with President Francois
Hollande's fiscal credibility on the line. His first annual
budget, France's toughest in 30 years, raised taxes to bring in
30 billion euros ($39 billion) to keep deficit-cutting promises.
    As equities dropped, the euro was left clinging to slim
gains. The single currency, which had fallen more than 2
percent in less than two weeks until Wednesday, was up 0.09
percent at $1.2935 at 1145 GMT against a broadly flat dollar.
    "The euro may still squeeze higher over the short term but
any rally will be unsustainable," said Derek Halpenny at Bank of
Tokyo Mitsubishi.
    "At some point that (Spanish) credibility issue is likely to
come back to undermine the current confidence. This is the fifth
package - so the history of previous packages is that they
weren't enough and lacked credibility."
    A busy data day still lies ahead. It includes key Chicago
purchasing manager index numbers and, with personal consumption
figures and the quarter-end in focus, U.S. stock index futures
pointed to a soft open on Wall Street.
    As in Europe, where top shares have enjoyed a 17-percent
gain over the last 80 days, U.S. investors are looking to lock
in a 14-percent rise in the main S&P 500 index.
    In bond markets, Spanish bond yields edged
back above 6 percent as early optimism faded and uncertainty set
in over the looming bank stress tests and rating review. 
    That was offsetting hopes that the spending cuts announced
late on Thursday would pave the way for a bailout and for the
ECB to try and lower Spain's borrowing costs by buying its debt.
    Euro zone inflation data added to upward pressure on the
single currency as a surprise rise in Eurostat's flash September
reading cast doubts over the near-term chances of another
interest rate cut from the ECB.
    Ahead of its budget, France announced its public-sector debt
rose almost 2 percent to 91 percent of GDP. Greece's battered
economy showed little sign of recovery as the latest retail data
showed sales plunged 9.1 percent year-on-year in July.
    Commodity markets were generally firmer. Oil prices moved
above $113 and a small rise in gold prices put the metal on
course for its best quarterly performance in more than two
    Elsewhere in the currency market, the dollar index was flat
after being on defensive for much of Asian and European trading
    Despite its wobbling economy, China's yuan hit an all-time
high versus the dollar. In another sign of improving
global risk sentiment, the Indian rupee hit a near
five-month high. 
    "Risk appetite is coming back after the Spain budget," said
Dag Muller, technical analyst at SEB. "It will translate into a
fresh high for euro/dollar beyond $1.3173 and then the market
will start to wobble".