World stocks fall, bonds gain on Greek fears

NEW YORK Wed May 9, 2012 5:15pm EDT

Traders from Interactive Investor look at their computer screens in their office in Glasgow, Scotland May 8, 2012. REUTERS/David Moir

Traders from Interactive Investor look at their computer screens in their office in Glasgow, Scotland May 8, 2012.

Credit: Reuters/David Moir

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NEW YORK (Reuters) - 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.

The concerns over Europe added to those of U.S. and global economies turning softer. Oil prices and the Dow Jones industrial average fell for a sixth straight session. The slide in equity markets nearly wiped out this year's gains for European shares.

The festering debt crisis prompted investors to favor the dollar and seek safety in government debt. Gold touched a four-month low that all but erased its gains for 2012, while the euro fell for an eighth straight session to a 3 1/2-month low.

The Nasdaq briefly turned positive, the S&P rose to break-even and U.S. Treasuries trimmed gains on speculation Greece would get money from a euro zone bailout fund. But stocks retreated after the board of the European Financial Stability Facility agreed to a scheduled 5.2 billion euro payment.

The CBOE Volatility index .VIX, Wall Street's so-called fear gauge, rose 5.4 percent to 20.08.

"It's a very difficult market to trade in. I'm advising my clients to just hedge out all the way into July because we are going to see some heightened volatility like today for awhile," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab in Austin, Texas.

The Dow Jones industrial average .DJI closed down 97.03 points, or 0.75 percent, at 12,835.06. The Standard & Poor's 500 Index .SPX fell 9.14 points, or 0.67 percent, at 1,354.58. The Nasdaq Composite Index .IXIC slipped 11.56 points, or 0.39 percent, at 2,934.71.

In Europe, investors retreated from riskier euro zone bonds, driving Spanish yields above 6 percent, 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 ($45 billion) 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 .FTEU3 index of top European shares closed down 0.3 percent at 1,014.46 points. The index had been more than 1 percent lower earlier in the session.

MSCI's all-country world equity index .MIWD00000PUS fell 0.9 percent to 314.93, 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. The lull, not that unusual, was due to the widening spread of recent deals, which sidelined potential issuers, according to IFR.

Bond prices also pared early 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 percent. The safe-haven buying briefly pushed yields on the benchmark U.S. 10-year note below 1.8 percent, a key resistance level.

Bonds later pared gains. The 10-year U.S. Treasury rose 3/32 in price to yield 1.83 percent.

"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 $1.2936, down 0.5 percent on the day.

The U.S. dollar index .DXY was up 0.46 percent at 80.106. Against the Japanese yen, the dollar fell 0.35 percent at 79.58.

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 settled up 47 cents at $113.20 a barrel. U.S. crude settled down 20 cents at $96.81.

Gold dropped below $1,600 an ounce in heavy trading.

U.S. gold futures for June delivery settled down $10.30 at $1,594.20 an ounce.

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