GLOBAL MARKETS-Shares, euro slump on renewed euro zone fears

Mon Feb 4, 2013 5:57pm GMT

* World stock index on track for worst day since November
    * Spanish and Italian political fears hit bonds, shares
    * Euro falls ahead of ECB; U.S. Treasuries rally

    By Wanfeng Zhou
    NEW YORK, Feb 4 (Reuters) - Major stock markets fell on
Monday and the euro tumbled from multi-month highs against the
dollar and yen as political uncertainty in Spain and Italy
revived worries that the steps taken to rein in the euro zone
debt crisis could unravel.
    The MSCI's world equity index fell 1 percent
and was on track for its worst day since November. European
stocks posted their lowest close of the year, as shares in Spain
and Italy tumbled.
    Spanish 10-year bond yields climbed to
six-week highs after Prime Minister Mariano Rajoy faced calls to
resign over a corruption scandal involving allegations in the
media that he received payments from a slush fund. Rajoy denies
any wrongdoing. 
    "The prospect of Rajoy's resignation has roiled the
markets," said Boris Schlossberg, managing director of FX
strategy at BK Asset Management in New York. 
    "Any fresh political instability in (the) euro zone's most
important periphery economy could undermine the sense of
investor confidence and send Spanish yields higher, making it
much more difficult for the government to implement its
austerity measures."
    In Italy, former Prime Minister Silvio Berlusconi, one of
the top candidates in this month's general election, is seeing a
resurgence in popularity, which threatens the reforms
implemented by the outgoing technocrat government.
 
    U.S. stocks declined after a disappointing report on factory
orders, after a rally on Friday that drove the S&P 500 to a
five-year high and the Dow to close above 14,000 points for the
first time since October 2007.
    "S&P technicals are at overbought levels, and risk-off
harbingers, such as Spanish 10-year yields, which are much more
difficult for central bankers to tame, have bounced off recent
lows," said Peter Cecchini, managing director at New York-based
Cantor Fitzgerald & Co.
    The Dow Jones industrial average was down 132.79
points, or 0.95 percent, at 13,877.00. The Standard & Poor's 500
Index was down 14.65 points, or 0.97 percent, at
1,498.52. The Nasdaq Composite Index was down 38.19
points, or 1.20 percent, at 3,140.91.
    The FTSEurofirst 300 ended down 1.47 percent at
1,150.91 points, its lowest close since Dec. 31. It had hit a
near two-year peak of 1,178.55 points in late January.
    Spain's IBEX fell 3.8 percent, and Italy's FTSE MIB
 shed 4.5 percent.

 
    
    EURO RETREATS BEFORE ECB
    Spanish 10-year government bond yields rose as
much as 24 basis points on the day to 5.45 percent, their
highest level since mid-December, while Italian yields
 jumped 15 basis points to 4.48 percent.
    The euro traded at $1.3530, down 0.8 percent. It had
risen to $1.3711 on Friday, a level unseen since late 2011.
    But the euro's dip may prove temporary, strategists said,
and it could resume its move up if the European Central Bank,
which is to hold a policy meeting on Thursday, expresses no
concern about the currency's recent gains.
    Against the yen, the euro was down 1.2 percent at 125.25 yen
, off a 33-month high of 126.96 yen struck last week.
The dollar fell 0.2 percent to 92.57 yen.
    In commodities trading, Brent oil fell to a low of
$115.54 per barrel before recovering slightly to around $115.99,
down 77 cents. Brent had risen for three straight weeks. 
    U.S. crude dropped $1.12 to a low of $96.65 per
barrel after rising for eight consecutive weeks, the longest
such winning streak since July-August 2004.
    Oil prices had rallied in recent weeks on signs of an
improving global economic outlook and geopolitical tensions in
the Middle East.
    "The market is long due a correction," VTB Capital oil and
commodities markets strategist Andrey Kryuchenkov said. "The
market is firmly in an uptrend, but so over-bought."
    Spot gold rose 0.5 percent to $1,675.39 an ounce.
    U.S. Treasuries prices rose as bargain-minded investors
emerged and pushed benchmark yields below 2 percent after
climbing overnight to their highest levels in over nine months. 
    The benchmark 10-year U.S. Treasury note was up 14/32, the
yield at 1.9745 percent.
    Overnight, Asian shares climbed to 18-month highs. China
added to the optimism about the global economy by reporting on
Sunday that its services sector had grown for a fourth straight
month in January, although the slim gain signaled that the
global recovery under way is a modest one.