GLOBAL MARKETS-Stocks drop, euro slips on eurozone worries

by on September 28, 2012 5:25 pm BST

Fri Sep 28, 2012 1:25pm EDT

* Spanish bank audit, French budget add to eurozone concerns
    * U.S. dollar and Treasuries gains on risk aversion

    NEW YORK, Sept 28 (Reuters) - Stocks in the U.S. and Europe
slid and the euro fell on Friday after initial optimism about
Madrid's debt-cutting plans gave way to anxiety over its
troubled banks and faltering global economic growth.
   Spain plans to ask for around 40 billion euros ($51.46
billion) in European aid to recapitalise its weak banks, Bank of
Spain deputy Governor Fernando Restoy said on Friday.
   An independent audit of Spanish banks by Oliver Wyman showed
the country's troubled lenders would need 59.3 billion euros in
extra capital to ride out a serious economic downturn.
    Spain will remain in focus, analysts said, with Moody's
Investors Service expected to finish a credit rating review soon
which may cost Madrid its sovereign investment grade status.
    "At some point that (Spanish) credibility issue is likely to
come back," said Derek Halpenny, European head of FX research at
Bank of Tokyo Mitsubishi in London. "This is the fifth package -
so the history of previous packages is that they weren't enough
and lacked credibility."
    The MSCI index of world stocks was down 0.5
percent. Madrid's IBEX index led the falls, down 1.7
percent as an early lift from Spain's new round of spending cuts
    In the U.S., the Dow Jones industrial average was
down 48.96 points, or 0.36 percent, at 13,437.01. The Standard &
Poor's 500 Index  was down 5.75 points, or 0.40 percent,
at 1,441.40. The Nasdaq Composite Index  was down 13.73
points, or 0.44 percent, at 3,122.87. 
    A report showing business activity in the U.S. Midwest
contracted this month for the first time since September 2009 
knocked U.S. stock prices lower while the dollar strengthened
against the euro as investors shunned risk. 
    "We had been seeing good data recently, but now we seem to
be following the slowdown in China and Europe and we're seeing
weakness," said Paul Nolte, managing director at Dearborn
Partners in Chicago.    
    Despite Friday's fall in U.S. stock prices, the S&P 500
index has advanced around 5.8 percent over the past three
    France was also under the microscope on Friday. President
Francois Hollande's first annual budget, France's toughest in 30
years, raised taxes to bring in 30 billion euros ($39 billion)
to keep deficit-cutting promises. 
    France announced its public-sector debt rose almost 2.0
percent to 91 percent of gross domestic product. 
    Investors this week have again worried that the euro zone is
failing to gain control over its debt crisis though spending
cuts announced in Spain's budget on Thursday helped the yield on
Madrid's 10-year bond fall back below 6.0 percent.
    But euro zone inflation data limited any falls in yields on
Friday 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.
    The euro fell 0.3 percent to $1.2873 as risk aversion
rose after the U.S. data. The dollar gained 0.4 percent against
the yen, while the euro manged to gain 0.1 percent
against the Japanese currency.
    In other currency markets, China's yuan hit an all-time high
versus the dollar, despite slowing Chinese economic
growth recently. 
    Concerns about progress solving the euro-zone debt crisis
and slowing global economic growth helped to support U.S.
Treasury prices. The benchmark 10-year U.S. Treasury note
 was up 5/32, with the yield at 1.637 percent.
    In commodity markets, gold surrendered gains on Friday as
the U.S. dollar rallied but the metal stayed on track for its
biggest quarterly gain in more than two years on the back of
this month's central bank easing measures. 
    Oil markets were steady with those investors more inclined
to look at tight gasoline supply in the United States.  
    Brent crude futures for November were flat at $112.02
 per barrel. U.S. crude rose 0.2 percent to $92.