World stocks fall for 6th day, bonds rise on Greek fear
On Sunday voters in France and Greece voted in droves against the strategy of harsh budget cuts leaders contend is necessary to preserve the economic union that is at the heart of the European Union. The question then arises: Is the European dream in dang
Global shares slid for a sixth day while safe-haven U.S. and German government debt rose on Wednesday as rising fears about the fragility of Spanish banks and a political impasse in Greece worsened fears about the euro zone debt crisis.
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The concerns over Europe added to those of U.S and global economies turning softer. The turmoil put the Dow Jones industrial average on track for a sixth day of losses and nearly wiped out this year's gains for European shares.
Oil prices also slid for a sixth straight session as gold touched a four-month low that all but erased its gains for 2012.
The euro zone debt crisis prompted investors to favor the dollar and seek safety in government debt.
Also Read: Euro at 3-month low; shares mixed as eyes on Greece
But U.S. and European stocks pared losses while U.S. Treasuries trimmed gains after markets closed in Europe on hopes Greece was likely to get a bailout payment.
The board of the euro zone's EFSF bailout fund is expected to decide whether to make a 5.2 billion euro payment to Greece after some Greek parties rejected the terms of the EU/IMF bailout.
Sources said the board would more likely than not decide to release the payment scheduled for Thursday.
"Every time there are these problems in Europe, it gets very, very dark and then someone pulls a solution out of the hat," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
"That is creating some complacency here. People think, 'Oh, this Greek thing is going to get worked out.'"
Stocks on Wall Street had tumbled more than 1 per cent, with the S&P 500 hitting a two-month low, when stocks pared losses to trade close to break-even.
The Dow Jones industrial average was down 50.71 points, or 0.39 per cent, at 12,881.38. The Standard & Poor's 500 Index was down 3.92 points, or 0.29 per cent, at 1,359.80. The Nasdaq Composite Index was down 3.57 points, or 0.12 per cent, at 2,942.70.
In Europe, investors retreated from riskier euro zone bonds, driving Spanish yields above 6 per cent, on worries over how Spain's banks would meet government demands for a hefty recapitalization.
Spain will demand banks set aside another 35 billion euros against loans to the ailing building sector, financial sources said. Huge bank losses have raised fears that the country may need an international bailout.
The FTSE Eurofirst index of top European shares closed down 0.3 per cent at 1,014.46 points. The index had been more than 1 per cent lower earlier in the session.
MSCI's all-country world equity index fell 0.6 per cent to 315.87, its sixth loss in a row to near lows last seen in February.
The euro zone worries hit the primary market for corporate debt, after $11.9 billion in new investment-grade issuance was priced Monday and Tuesday.
Bond prices also pared earlier gains after the 10-year Bund future in Germany hit an all-time high and the 10-year yield fell as low as 1.498 per cent. The safe-haven buying briefly pushed yields on the benchmark U.S. 10-year note below 1.8 per cent, a key resistance level.
Bonds later pared gains, pushing prices on the 10-year U.S. Treasury to trade flat, with its yield at 1.84 per cent.
"If you look at the uncertainty that is mounting in Europe and the way things are going with our own economy, there is a potential turn that could be very negative" for the global economy, said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
The euro fell as low as $1.2910, its lowest since January 23. It last traded at $1.2954, down 0.3 per cent on the day.
The U.S. dollar index was up 0.34 per cent at 80.011. Against the Japanese yen, the dollar fell 0.30 per cent at 79.66.
Brent crude oil slipped below $112, on track for its longest losing streak in nearly two years, as the political turmoil in the euro zone deepened worries about prospects for fuel demand.
Rising U.S. oil stocks and increased production from Saudi Arabia at a time of economic gloom have helped push oil down from levels near $126 per barrel in April.
Brent crude traded up 15 cents to $112.88 a barrel. U.S. crude settled down 20 cents at $96.81.
Copyright @ Thomson Reuters 2012