Fri Sep 28, 2012 8:22am EDT
* Euro STOXX 50 down 0.8 percent as Spain sentiment wears off * 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 good." 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." MARKET WOBBLE 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 years. 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".