Wednesday, December 1, 2010

GLOBAL MARKETS-Euro sinks on Portugal debt woes; stocks down

NEW YORK: Growing fears about Portugal's debt drove the euro to a 10-week low against the dollar on Tuesday, Nov 30, while U.S. stocks fell for a third straight day even as the U.S. economy showed some encouraging signs.

The euro fell below the technically critical $1.30 level after Standard and Poor's put Portugal's A-minus credit ratings on review for a possible downgrade, citing uncertainties related to a possible financial rescue by the European Union and the International Monetary Fund.

Investors fled to to safe-haven assets on the worries about euro zone sovereign debt, driving U.S. government bond prices higher and sending gold prices to a 2-1/2 week peak.

The strengthening dollar helped drive down the price of oil by almost 2 percent, adding to ongoing concerns about China's economic growth.

The pressure is building around debt-soaked Portugal and Spain as investors worry about a repeat of this year's Irish and Greek bailouts.

Although Lisbon, much like Ireland earlier, denies Portugal needs aid, markets are already discounting an eventual Portuguese emergency financial rescue.

While rescuing Portugal would be manageable, assistance for Spain would sorely test the European Union's resources, raising deeper questions about the integrity of its 12-year-old currency and possible contagion beyond Europe.

S&P late on Tuesday said it was placing its A-minus long-term and A-2 short-term ratings on Portugal on creditwatch with negative implications, meaning a possibility of a downgrade.

"The market has taken what to happened to Ireland as a road stop, not the final destination," said Vincent Boberski, senior vice president at Vining Sparks in Memphis, Tennessee.

The spreads on bonds of peripheral European countries rose to new highs on Tuesday amid concern weak member states may ultimately be forced to default.


On Wall Street, stocks finished lower, but showed some resilience as the Conference Board, an industry group, reported that U.S. consumer confidence rose to its highest level in five months in November.

In another positive sign, the Institute for Supply Management-Chicago reported that U.S. Midwest business activity grew faster than expected in November.

The Dow Jones industrial average closed down 46.47 points, or 0.42 percent, at 11,006.02. The Standard & Poor's 500 Index dipped 7.21 points, or 0.61 percent, at 1,180.55. The Nasdaq Composite Index shed 26.99 points, or 1.07 percent, at 2,498.23.

Google Inc shed 4.5 percent to $555.71 following media reports that the company was close to a deal to buy local advertising website Groupon Inc in what could be the Web search leader's biggest acquisition to date.

"You do have a bit of a tug of war between those investors who see the environment as positive for equities over the intermediate to long-term (and) traders who are more concerned about the short-term impact of European debt concerns," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

In Europe, the FTSEurofirst 300 index of top European companies closed 0.2 percent lower at 1,067.22 points, posting a 1.8 percent loss for November, its heaviest monthly slump since May.

In Europe, The December futures contract for the Nikkei 225 stock index trading in Chicago fell 155 points to 9,940.

MSCI's all country world index was down 0.62 percent.

The euro posted its worst month since May on Tuesday, with more losses likely next month.

"The European credit market is in panic mode because of fears of insolvency, and the euro is trading off those credit yields," said Boris Schlossberg, director of FX research at GFT in New York.

"For the euro to stabilize, credit yields need to stabilize and for that to happen, we need action from the European Central Bank. The Irish bailout was not enough and so the pressure is building."

The euro fell to $1.2980, its lowest level since mid-September, amid fear of regional contagion and uncertainty over the currency's future.

With the spotlight on the euro, the dollar continued to gain, hitting a more than two-month high against a currency basket at 81.310.

U.S. Treasuries prices rose on the anxiety over the fiscal and debt problems in Europe, but the bond market was still poised for its worst month since December 2009.

The benchmark 10-year U.S. Treasury note was up 5/32, with the yield at 2.8077 percent. The two-year U.S. Treasury note rose 3/32, with the yield at 0.4607 percent. The 30-year U.S. Treasury bond gained to 12/32, with the yield at 4.1203 percent.

U.S. crude oil settled down 1.89 percent to $84.10 per barrel, and spot gold prices rose $17.16, or 1.26 percent, to $1383.60 an ounce, a 2-1/2 week-high as investors bought the metal as a safe store of value. - Reuters

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