Global stocks, euro fall on Spain bank bailout uncertainty

NEW YORK Mon Jun 11, 2012 4:57pm EDT

A woman passes an electronic monitor displaying Japan's Nikkei share average (top C) along with other countries' stock price indexes outside a brokerage in Tokyo June 11, 2012. REUTERS/Yuriko Nakao

A woman passes an electronic monitor displaying Japan's Nikkei share average (top C) along with other countries' stock price indexes outside a brokerage in Tokyo June 11, 2012.

Credit: Reuters/Yuriko Nakao

NEW YORK (Reuters) - Stocks slid and the euro fell against the U.S. dollar on Monday, while Spain's bond yields rose as investors worried about details of a $125 billion deal to shore up Spanish banks.

Wall Street tumbled sharply in a late sell-off after closing its best week of the year on Friday, as concerns over euro zone finances and global growth persisted. .N

Euro-zone finance ministers struck a deal over the weekend to lend Spain up to 100 billion euros ($125 billion) to bail out its banks. Skepticism about the ability of the deal to stop the spread of the debt crisis in Europe was evidenced in renewed appetite for safe-haven U.S. Treasuries.

Spanish bond yields rose as investors worried over how much the deal will add to the country's fast-rising debt burden. There were concerns that existing bondholders could face losses in any debt restructuring if the euro zone's permanent bailout fund is used for the rescue. <GVD/EUR>

"This is a realization that Spain, while providing money for its banks, is going to add to its debt-to-GDP ratio, and it's going to potentially subordinate some of the current Spanish sovereign debt, which doesn't make those bond holders happy," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

The deal was also seen as a temporary solution that does not address the question of how to kick-start growth in the euro zone's fourth-largest economy.

"They're borrowing more money, not doing anything about growth," Zemsky said. "Today we're not worried about Spain's banking system falling off a cliff, but other than that, nothing's changed."

Highlighting the uncertainty over the deal's terms, European Union and German officials said Spain would face supervision by international lenders, contradicting comments from Spanish Prime Minister Mariano Rajoy.

Adding to the gloom, a Greek election on Sunday could put Athens on a path to leaving the currency bloc. Cyprus, deeply exposed to Greece, hinted on Monday that it may become the fifth member of the 17-nation euro area to apply for an international bailout.

The Dow Jones industrial average .DJI lost 142.97 points, or 1.14 percent, to 12,411.23. The S&P 500 Index .SPX dropped 16.73 points, or 1.26 percent, to 1,308.93. The Nasdaq Composite .IXIC slid 48.69 points, or 1.70 percent, to 2,809.73.

The Euro STOXX 50 .STOXX50E, the euro zone's leading index of blue-chip shares, fell 0.3 percent and Spain's IBEX 35 .IBEX closed 0.5 percent lower.

Global shares as measured by MSCI .MIWD00000PUS fell 0.3 percent.

The benchmark 10-year U.S. Treasury note was up 11/32, with the yield at 1.5945 percent.

After the initial euphoria on Spain's bailout faded, the euro gave up its gains against the U.S. dollar. It last traded around $1.2481 after hitting a near three-week high of 1.2668. <USD/>

"The deterioration in euro sentiment following Spain's bailout news is a clear indication of the extent of negativity surrounding the currency," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.

Traders said any euro bounce should give way to profit-taking before the June 17 Greek elections. A win for parties opposing the austerity terms of the country's bailout could lead to Greece leaving the euro.

Copper prices rose 1.6 percent, supported by data showing China's May imports climbed nearly 12 percent from April. The data, however, also showed China's inflation, industrial output and retail sales flagged in May for a second straight month.

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Comments (4)
Spankybulldog wrote:
Germany and France benefited the most from the inflated value of the Euro. For years the EU stole money from the world with inclusion of countries that were not economically equal thereby propping up extra cash into the pockets of Germans and French. The Plot to Overthrow is for nothing on the net by a fellow named Mohammad Goldstein. Go get it Obama has a copy. Germans will now pay for the attempts to stop the euro from crashing and that is like trying to bail out the Titanic with a bucket. It will all crash and begin this year the loss will be all of the hard earned greedy inflated money the German people spent trying to prop this up.

Jun 10, 2012 11:50pm EDT  --  Report as abuse
VonHell wrote:
They benefit from weaker euro actualy. Weaker currency make Germany and France more competitive with exports… and this lures weaker economies to try luxuries, like Greeks buying german cars…
But this rebouncing is not so impressive if not last the week… much more irrelevant news caused similar fluctuations to promote profits in the markets… and since this bailout that is not a bailout did nothing to the problem…
Another chance to sell the bad assets and take your money out spanish banks as people say…

Jun 11, 2012 7:24am EDT  --  Report as abuse
BOBWSA wrote:
The republicans and Bush with help from Mitt Romney caused this to happen. Only President Obama can save us now.

Jun 11, 2012 9:04am EDT  --  Report as abuse
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