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GLOBAL MARKETS-Stocks, euro fall on European debt fears

by on July 24, 2012 9:08 pm GMT
 

Tue Jul 24, 2012 5:08pm EDT

* Spain’s bond yields jump, Greece’s euro future in doubt

* Euro hits lowest vs USD since June 2010

* Wall St cuts loss on Fed hopes, Apple slides after the
bell

* U.S. Treasury 10-year yield hits historic low

By Rodrigo Campos

NEW YORK, July 24 (Reuters) – Stock markets fell and the
euro hit a two-year low on Tuesday as rising Spanish borrowing
costs drove Madrid closer to a full-scale bailout, while
Greece’s membership in the euro zone was at risk as its finances
appeared to be off its aid package terms.

U.S. equities, pressured further by lowered 2012 U.S. profit
forecasts, staged a late-day comeback off technical support on
the S&P 500 and as the Wall Street Journal said the Federal
Reserve was ready to act in support of a flagging U.S. economy.

Top Fed officials recently have spelled out what measures
they might take to boost growth and hiring, including Chairman
Ben Bernanke in a speech last week.

Risk aversion during the session drove the benchmark U.S.
10-year Treasury note yield to a fresh historic low.

Spanish yields climbed above 7.6 percent on its 10-year bond
, reflecting a growing belief that the country will
need a bailout that the euro zone can ill afford.

As inspectors from Greece’s three international creditors
returned to Athens to decide whether to keep a 130-billion-euro
lifeline active, three European Union officials said they were
likely to conclude the country cannot repay what it owes.

“People are jumping to the conclusion (Greece) won’t get any
more money than (what) they need to in order to pay back the ECB
and therefore they will exit the euro,” said Gail Dudack, chief
investment strategist at Dudack Research Group in New York.

She said she didn’t see the Greek exit as imminent but “much
further out in history.”

The Dow Jones industrial average fell 104.14 points,
or 0.82 percent, to 12,617.32. The S&P 500 Index dropped
12.21 points, or 0.90 percent, to 1,338.31. The Nasdaq Composite
lost 27.16 points, or 0.94 percent, to 2,862.99.

The late bounce in equities was linked to expectations of a
Fed move to support the economy, a recurring theme of late on
Wall Street as macro data has softened in the last several
weeks.

“Given the events going on around the world, I think the
odds are increasing the Fed will take action at one of the next
two meetings,” said Michael Sheldon, chief market strategist at
RDM Financial in Westport, Connecticut.

Quarterly results from Apple, which missed
analysts’ revenue forecasts, could snap hopes for a rebound on
Wall Street on Wednesday.

Apple shares dropped more than 5 percent after the closing
bell. S&P futures fell 6 points, or 0.5 percent in light
trading after Apple’s earnings report.

In the regular session, the MSCI world equity index
fell 0.7 percent after losing 1.7 percent on
Monday. The FTSEurofirst 300 index of top European
shares closed down 0.55 percent a day after a 2.4 percent drop.

Italy’s benchmark FTSE MIB stock index fell 2.7
percent to close at its lowest since the 1999 launch of the
euro.

Further weighing on Wall Street, U.S. manufacturers lowered
on Tuesday 2012 sales and profit forecasts even as several
companies reported higher-than-expected quarterly earnings.

Shares of UPS, seen as a bellwether of the overall economy,
dropped 4.6 percent, and its top rival FedEx lost nearly
2 percent.

“You look at UPS and FedEx and you think they are sort of
the temperature-takers of what is going on. If they are tanking,
why should I step in front of that moving train?” said Cummins
Catherwood, managing director at Boenning and Scattergood in
West Conshohocken, Pennsylvania.

The euro hit $1.2040, its lowest since June 2010
versus the U.S. dollar, and was last down 0.4 percent, marking
its fifth day of declines for a total drop of 1.9 percent.

Rating agency Moody’s on Monday changed its outlook for
Germany to negative, in part on the potential cost to Berlin if
Spain needs more financial help. Moody’s also cut the outlook
for the Netherlands and Luxembourg to negative from stable.

“It is underlining the fact that whatever resolution for
Europe … will ultimately undermine the stronger members of the
euro zone,” said Tommy Molloy, chief dealer at FX Solutions in
Ridgewood, New Jersey.

U.S. and European manufacturing showed signs of weakness. A
stronger factory reading out of China gave commodities support,
but the sharp decline in the euro reversed gains in copper and
stalled the recent advance in oil prices.

Data showed Europe’s economic troubles caused a sharp
slowdown in German factory activity, although an improvement in
China’s manufacturing sector supported oil and copper prices.
The euro zone as a whole is nearing a recession.

U.S. data showed manufacturing expanded at its slowest pace
since late 2010, hobbled by weak overseas demand for American
goods, though a rise in domestic orders helped cushion the blow.

U.S. Treasuries were steady at higher levels after a 2-year
note auction, part of $99 billion in new debt sales planned for
this week. The benchmark 10-year note was up 14/32,
with the yield at 1.3892 percent, an all-time low.

Three-month copper on the London Metal Exchange fell
0.1 percent after having risen more than 1 percent.

Oil prices fluctuated in choppy trading. Brent edged
up 4 cents to $103.30 a barrel and U.S. crude gained 7
cents to trade at $88.21.