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GLOBAL MARKETS-Stocks slip on Europe fears, Spain yields jump

by on September 26, 2012 8:42 pm BST
 

Wed Sep 26, 2012 4:42pm EDT

* Euro dips to two-week low as austerity protests in Europe
grow

* Spain leads European stocks lower, Wall Street follows

* U.S., German government debt rise on safe-haven buying

* Spain’s 10-year debt yield jump to 6 pct as pressure on
Madrid grows

By Herbert Lash

NEW YORK, Sept 26 (Reuters) – World shares slumped and the
euro hit a two-week low on Wednesday as growing opposition in
Europe to measures aimed at resolving the euro zone’s debt
crisis unnerved investors already skittish about the weak
outlook for global growth.

Investors focused on Spain, where the main share index lost
3.9 percent and yields on 10-year bonds hit 6 percent on
worries about Madrid’s commitment to reform after violent
protests and talk of secession by the wealthy Catalonia region.

A general strike in Greece and signs of discord among top
euro zone officials over new policies to tackle the crisis added
to concerns, taking the gloss off recent moves by the European
Central Bank to calm markets by buying bonds.

International lenders are at loggerheads over how to solve
the crisis in Greece, threatening more trouble for the euro zone
as the International Monetary Fund demands European governments
write off some of the Greek debt they hold.

The euro fell to $1.2836, a two-week low, and traded
at $1.2864, down almost 0.3 percent on the day.

Crude oil prices fell more than 1 percent before paring some
losses, and U.S. stocks followed European shares lower, though
not as sharply. Stocks in the euro zone suffered their worst
session in two months.

Both U.S. and German government debt rallied in safe-haven
buying.

“Things are bumpy again in Europe. You are seeing more
tension there,” driving the bond rally, said Eric Green, global
head of rates and FX research and strategy with TD Securities in
New York.

Yields on Spain’s 10-year bond topped 6
percent for the first time in a week, while U.S. government debt
prices rose for an eighth straight session. Reluctance by Spain
to ask for aid could prolong the euro zone debt crisis.

The benchmark 10-year U.S. Treasury note was up
16/32 in price to yield 1.6164 percent.

“As if insulted by all the attention that Spanish protesters
were getting, Greek citizens held a protest of their own,” said
Neal Gilbert, market strategist at GFT in Grand Rapids,
Michigan. “All of this uncertainty is causing investors to head
for the exits and scramble for some safe-haven assets, propping
up the U.S. dollar.”

Traders and investors active in the market realize that
despite reduced risks, the ECB’s bond-buying program does not
resolve all the problems in the euro zone, analysts said.

A fresh batch of weak data and gloomy corporate reports from
across the globe weighed on sectors most sensitive to the
economic cycle, like autos and basic resources.

The Euro STOXX 50 index of euro zone blue chips
closed down 2.7 percent at 2,498.52, marking the biggest one-day
drop since early August.

MSCI’s all-country world equity index was
down 1.3 percent at 330.60.

The FTSEurofirst 300 of top regional shares fell
1.86 percent to 1099.01.

In the United States, the view of the economy deteriorated
sharply in the third quarter and is now as bleak as it was in
the immediate aftermath of the last recession, according to a
survey of chief executives released by the Business Roundtable.

Slowing global growth is likely to crimp company profits.
Caterpillar Inc cut its earnings outlook for 2015 on
Monday, as have FedEx Corp and Norfolk Southern,
both of which are economic bellwethers because of their shipping
roles.

“Buyers have reached a point of exhaustion after FedEx and
Caterpillar and the like, all of whom pointed to economic
weakness,” said James Dailey, portfolio manager at TEAM Asset
Strategy Fund in Harrisburg, Pennsylvania.

“People had been buying on the idea that the Fed would prop
everything up, but if they can’t, there’s real potential for
panic selling,” Dailey said.

The Dow Jones industrial average closed down 44.04
points, or 0.33 percent, at 13,413.51. The Standard & Poor’s 500
Index fell 8.27 points, or 0.57 percent, at 1,433.32. The
Nasdaq Composite Index slid 24.03 points, or 0.77
percent, at 3,093.70.

In the oil markets, developments in Europe overshadowed any
bullish sentiment generated by government data that showed U.S.
crude inventories fell by 2.45 million barrels last week,
against analyst expectations of an increase.

Brent crude oil, the global benchmark, pared a good deal of
its losses late in the session.

Brent futures fell 41 cents to settle at $110.04 a
barrel. U.S. light sweet crude oil fell $1.39 to settle
at $89.98 a barrel.

“It is ‘risk off’ today,” said Olivier Jakob, energy analyst
at Petromatrix in Zug, Switzerland. “The Greek strike and
Spanish demonstrations are getting a lot of coverage.”