Euro falls as Spain worry overshadows Greek vote
The euro fell from a
one-month high against the dollar on Monday as surging Spanish
borrowing costs fueled fears of an escalating euro zone debt crisis and
overshadowed a weekend victory for pro-bailout parties in Greek
elections.
Spanish bond yields rose above 7 percent, the highest
since the euro was launched in 1999, threatening Madrid's ability to
finance itself. Greece, Ireland and Portugal were forced to seek
international bailouts soon after their 10-year bond yields rose above 7
percent.
Although Sunday's vote eased immediate concerns about
Greece being forced out of the euro zone, the narrow victory raised
doubts over how the winning New Democracy party would implement deep
spending cuts and tax increases that come with the bailout.
The euro
<EUR=> was down 0.5 percent at $1.2576, off a one-month high of
$1.2747 hit in Asia as it came under pressure on reported selling by
Asian sovereign investors. It was the euro's worst showing in nearly
three weeks. Investors are shifting focus to a policy announcement
by the Federal Reserve on Wednesday. Some analysts said the euro could
gain versus the dollar on speculation the U.S. central bank may opt for
more easing to boost growth.
Many market players expect the Fed to
extend its long-term bond-buying through Operation Twist by a few months
from the current deadline of June after a series of disappointing data.
Citigroup, for one, expects a modest extension of Operation Twist by
$200 billion, although it may not have as much risk-positive impact as
the two rounds of quantitative easing.
The dollar rose 0.5 percent to 79.09 yen <JPY=>. The euro was little changed at 99.48 yen <EURJPY=>.
Tech outpaces a market bedeviled by Europe
The
Nasdaq advanced on Monday, propelled by a rally in Apple and other
big-cap tech stocks, but fears Europe's debt crisis is in danger of
worsening limited broader gains.
Positive analyst comments lifted
both eBay <EBAY.O>, up 4.5 percent to $42.49, and Groupon Inc
<GRPN.O>, up 10.8 percent at $11.15. Apple Inc <AAPL.O>
accounted for about half the Nasdaq's rise, climbing 2 percent to
$585.78.
The S&P eked out a slight gain as it bumped up against
its 50-day moving average around 1,347 while the Dow ended lower. A
weekend election victory by pro-bailout parties in Greece removed one
headwind facing the euro zone. But rising bond yields in Spain and Italy
reinforced views that Europe has yet to control its debt crisis.
A
senior official with Greece's New Democracy party, the conservatives who
won Sunday's election and who back Athens' international bailout plan,
told Reuters that Greece would form a government on Tuesday.
The
election results also offered little reprieve from contagion concerns as
yields on both Italian and Spanish bonds rose, with Spain's 10-year
yield <ES10YT=TWEB> climbing above the 7 percent mark at which
other highly indebted euro-zone nations were forced to seek bailouts.
European authorities have already agreed to a 100-billion-euro ($125
billion) rescue for Spain's troubled banks.
Market participants were
also reluctant to take bets ahead of the U.S. Federal Reserve's two-day
policy meeting, with investors keen to see if the Fed will announce new
stimulative measures in its policy statement at the meeting's close on
Wednesday afternoon.
The Dow Jones industrial average <.DJI>
was down 25.28 points, or 0.20 percent, at 12,741.89. The Standard &
Poor's 500 Index <.SPX> was up 1.94 points, or 0.14 percent, at
1,344.78. The Nasdaq Composite Index <.IXIC> was up 22.53 points,
or 0.78 percent, at 2,895.33.
An index of energy shares
<.GSPE> fell 0.8 percent on Monday, with the sector ranking as the
S&P 500's worst performer. U.S. crude futures <CLc1> dropped 1
percent after falling for six of the last seven weeks.
Gold edges up on uncertainty over Europe, FOMC
Gold
eked out a small gain on Monday as lingering uncertainty over the euro
zone debt crisis following Greece's elections and a policy meeting by
the U.S. Federal Reserve lifted bullion from its early losses.
Safe-haven
bids boosted gold as G20 leaders pressed Europe to do whatever it takes
to combat Europe's crisis after a victory for pro-bailout parties in a
Greek vote reduced the chances of a euro breakup but failed to calm
financial markets.
Monday's trading volume of U.S. gold stood at
just over half of its 30-day average, and gold option volatility also
tumbled as investors opted to stay on the sidelines ahead of a key Fed
meeting later this week.
Spot
gold <XAU=> was up 30 cents at $1,628.09 an ounce by 2:11 p.m.
EDT (1811 GMT), recovering from an early low of $1,606.49. Prior to
Monday, bullion had ended higher in each of the last six sessions.
U.S.
gold futures <GCQ2> for August delivery settled down $1.10 at
$1,627. Trading volume was about 40 percent below its 30-day average,
preliminary Reuters data showed, consistent with last week's weak trend.
Crude Falls for First Time in Three Days on European Debt
Oil
dropped for the first time in three days as the worsening European debt
crisis threatened to slow global economic growth and reduce demand for
crude.
Prices declined 0.9 percent as Spanish borrowing costs rose
to a euro-era high. More loans went unpaid in April, Bank of Spain data
showed, suggesting the country’s recession is forcing more companies
and consumers into default. Weekend elections in Greece eased concern
that the country will exit the euro.
“There is a bearish economic
contagion in Europe and it’s essentially bringing prices down,†said
Michael Lynch, president of Strategic Energy & Economic Research in
Winchester, Massachusetts. “Although the Greek news was positive,
people are more concerned now about Spain.†Oil for July delivery
fell 76 cents to settle at $83.27 a barrel on the New York Mercantile
Exchange. Prices are down 19 percent in the second quarter and 16
percent this year.
Brent oil for August settlement dropped $1.56, or
1.6 percent, to $96.05 a barrel on the London-based ICE Futures Europe
exchange. The 10-year Spanish bond yield jumped above 7 percent for
the first time since the creation of the euro. Bad loans as a proportion
of total Spanish lending rose to 8.72 percent in April, the highest
level since 1994.
Nikkei set to slip as concerns on Spain persist
Japan's
Nikkei average is on Tuesday expected to give up some of its hefty
gains from the previous session as initial enthusiasm over a victory for
pro-bailout parties in Greece gives way to persistent concerns over
Spain and its banks. The Nikkei <.N225> was likely to trade
between 8,600 and 8,750, strategists said, after Nikkei futures in
Chicago <0#NIY:> closed at 8,680 on Monday, down 0.6 percent from
the Osaka <JNIc1> close of 8,730.
Spanish bond yields hit a
new euro-era high above 7 percent on Monday, with bad loans at banks in
Spain climbing to 8.72 percent of their outstanding portfolios in April,
the highest level since April 1994, Bank of Spain data showed on
Monday. That is up from 8.37 percent a month earlier.
The surge in
borrowing costs threatened Spain's ability to fund itself and raises
speculation the country may need a full-blown bailout. Greece, Ireland
and Portugal were forced to seek international bailouts soon after their
10-year bond yields climbed above 7 percent.
The Nikkei on Monday
climbed 1.8 percent to 8,721.02, its highest closing level since May 22
and breaking above its 25-day moving average at 8,601.54.
But the
benchmark is still down 13.5 percent so far this quarter after rallying
19.3 percent in January-March to log its best first quarter performance
in 24 years. The broader Topix <.TOPX> index advanced 1.7 percent to 738.81 on Monday, also marking a one-month closing high.
Seoul shares seen rangebound as relief rally fizzles out
Seoul
shares are likely to be trapped in a narrow range on Tuesday, as hopes
for decisive action from Europe's governments to handle the region's
debt crisis limit appetite for offloading shares after a rally the day
before.
With relief from a narrow pro-bailout victory in Sunday's
Greek election rapidly fading and the World Bank lowering its global
growth forecast, World leaders gathered in Mexico for a Group of 20
summit pressured Europe on Monday to take ambitious new steps to resolve
its debt crisis. The Korea Composite Stock Price Index (KOSPI) <.KS11> rose 1.8 percent to close at 1,891.71 points on Monday.
Hong Kong shares seen lower, Spain bailout fears weigh
Hong
Kong shares are expected to start lower on Tuesday, with risk appetite
crimped after Spain's borrowing costs jumped, raising speculation it
might need a full-blown bailout. The Hang Seng Index <.HSI> on
Monday closed up 1 percent at 19,427.8, off its high for the day just
shy of its 200-day moving average, currently at about 19,593.1.
The 38.2 percent Fibonacci retracement of its rise from October lows to February highs is at about 19,644.
Elsewhere
in Asia, Japan's Nikkei <.N225> was down 0.4 percent and South
Korea's Kospi <.KS11> was 0.2 percent lower at 0029 GMT.
Source : Reuters
