Tuesday, September 13, 2011

GLOBAL MARKETS-Euro, stocks fall after Italy sale

LONDON: The euro fell and European stocks erased gains on Tuesday after France denied it and Germany would make a statement on the euro zone's crisis, deepening concerns of a Greek debt default.

Wall Street was also on course to open lower as the United States voiced concern at the euro zone's inability to deal with debt problems many worry may now spur another banking crisis.

A French government source said German Chancellor Angela Merkel and President Nicolas Sarkozy were "determined to do what is necessary" and were "going to take action today" but the French President's office later denied a joint statement was planned.

Market attention for much of the morning centred on an auction of Italian five-year bonds which saw it pay the highest interest since it joined the euro, compounding fears about the currency bloc's third largest economy.

"People are coming back and focusing on Greece and Italy. It was a relief rally, but it feels like many are looking to sell on any strength. It is very difficult for bulls to hang on there," Joe Rundle, head of trading at ETX Capital, said.

European shares had opened higher after a Financial Times report that Italy had asked China to buy its debt. Another media report poured cold water on those expectations.

But Italian five-year yields at the auction soared to their highest since the euro's launch in 1999.

The pan-European share index was last little changed on the day while the MSCI world equity index was marginally firmer.

The FTSEurofirst 300 index has dropped more than 21 percent in 2011 as the world economy and euro zone crisis worsened and investors cut exposure to riskier assets such as stocks.

"Markets want to see decisive action and they want to see someone in control of the situation," Monument Securities strategist Marc Ostwald said. "Nothing that we've had, be it at a domestic level in Italy, be it at a pan euro zone level, or above all from Germany, indicates that anyone really is getting to grips with presenting euro zone policy with one voice."

The euro gave up brief gains to trade 0.2 percent down against the dollar at $1.3643 and looked set to stay under pressure on growing worries that Italy's borrowing costs could be heading for unsustainable levels.

It was down 0.5 percent against the yen at 104.97 yen , not far from a session low of 104.37 yen earlier.

"The auction results indicate that demand for Italian paper has weakened and it's not a supportive development for the euro," said Valentin Marinov, currency strategist at Citi.


Italian two-year yields were up 14 basis points at 4.74 percent while five-year debt yielded 5.42 percent, up 25 bps.

Greek two-year yields surged to 88 percent , making clear investors believe a default was all but inevitable within that period .

"There is a weakness at the heart of the euro zone and Greece is under a remarkable degree of pressure...If Germany are preparing a plan B it looks as though the people running the show are running for the hills and that's not going to improve confidence," said Rabobank strategist Richard McGuire.

Oil pared earlier gains after the International Energy Agency cut its estimate for demand growth and raised its supply forecast. The IEA, which advises 28 industrialised countries on policy, said slowing economic growth had led the agency to cut its oil demand growth forecast by 160,000 barrels per day for 2011 and by 190,000 bpd for 2012.

U.S. crude was last 0.8 percent up at $88.92 a barrel, off an early high of $89.21 while Brent was little changed at $112.35 a barrel. ' Reuters


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