September 26, 2012 / 4:31 PM / 5 years ago

GLOBAL MARKETS-Europe worries spark share sell-off, Spain yields jump

* Euro dips to two-week low as austerity protests in Europe grow

* Spanish stocks lead European stocks lower, Wall Street follows

* U.S. government debt rises on safe-haven buying

* Spain's 10-year debt yield jump to 6 pct as pressure on Madrid grows

By Herbert Lash

NEW YORK, Sept 26 (Reuters) - World shares fell sharply and the euro slipped to a two-week low on Wednesday as growing opposition in Europe to measures aimed at resolving the euro zone's debt crisis unnerved investors already skittish about the weak outlook for global growth.

Investors focused on Spain, where the main share index lost 3.9 percent and yields on 10-year bonds hit 6 percent on worries about Madrid's commitment to reform due to violent protests and talk of secession by the wealthy Catalonia region.

A general strike in Greece and signs of discord among top euro zone officials over new policies to tackle the crisis added to investor concerns, taking the gloss off recent moves by the European Central Bank to calm markets by buying bonds.

International lenders are at loggerheads over how to solve the crisis in Greece, threatening more trouble for the euro zone as the International Monetary Fund demands European governments write off some of the Greek debt they hold.

The euro fell to $1.2836, a two-week low, and traded at $1.2854, down more than 0.3 percent on the day.

Crude oil prices fell more than 1 percent and stocks on Wall Street followed European shares lower, though not as sharply. Stocks in the euro zone suffered their worst session in two months.

"There is still a real risk that Europe has to make some decisions that could hold the market together or not hold the market together over the next few weeks as it relates to Greece and certainly Spain," said T. Doug Dale, chief investment officer for Security Ballew in Jackson, Mississippi.

Yields on Spain's 10-year bond topped 6 percent for the first time in a week.

Traders and investors active in the market have realized that despite reduced risks, the ECB's bond-buying program does not resolve all the problems in the euro zone, analysts said.

A fresh batch of weak data and gloomy corporate reports from across the globe weighed on sectors most sensitive to the economic cycle, like autos and basic resources.

The Euro STOXX 50 index of euro zone blue chips provisionally closed down 2.4 percent at 2,505.87 points, its biggest one-day drop since early August.

MSCI's all-country world equity index was down 1.2 percent at 331.06 points.

The FTSEurofirst 300 of top regional shares fell 1.86 percent.

In the United States, the view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, according to a survey of chief executives released by the Business Roundtable.

Slowing global growth is likely to crimp company profits. Caterpillar Inc cut its 2015 earnings outlook on Monday, as have FedEx Corp and Norfolk Southern, both of which are economic bellwethers because of their shipping roles.

"Buyers have reached a point of exhaustion after FedEx and Caterpillar and the like, all of whom pointed to economic weakness," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"People had been buying on the idea that the Fed would prop everything up, but if they can't, there's real potential for panic selling," Dailey said.

The Dow Jones industrial average was down 14.32 points, or 0.11 percent, at 13,443.23. The Standard & Poor's 500 Index was down 5.47 points, or 0.38 percent, at 1,436.12. The Nasdaq Composite Index was down 23.55 points, or 0.76 percent, at 3,094.18.

U.S. government debt prices rose for an eighth straight session as worries that Spain's reluctance to ask for a full-blown bailout would prolong Europe's debt crisis, supporting a bid for safe-haven debt.

The benchmark 10-year U.S. Treasury note was up 9/32 in price to yield 1.6404 percent.

Brent crude oil, the global benchmark, fell more than 1 percent to below $109 a barrel before paring some losses.

Brent futures fell $1.30 to $109.15 a barrel. U.S. light sweet crude oil fell $1.82 to $89.54 a barrel.

"It is 'Risk Off' today," said Olivier Jakob, energy analyst at Petromatrix in Zug, Switzerland. "The Greek strike and Spanish demonstrations are getting a lot of coverage."

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