RPT-Spanish and Italian shares fall, bond yields rise

Mon Jun 18, 2012 4:36am EDT

LONDON, June 18 (Reuters) - Spanish and Italian financial assets fell on Monday, with the 10-year Spanish government bond yield hitting euro-era highs above 7 percent, because of persistent concern about Spain's fiscal and banking problems.

Financial markets had opened higher after Greece's pro-bailout parties won a slim majority in the weekend elections but the relief proved fleeting, with the euro also falling back against the dollar.

"Markets are looking to fade the relief rally, and Spain is suddenly blowing out again," a bond trader said.

"It (Spain) looks like it is going to be under pressure until at least Thursday, but really it is hard to see what can stop (Spanish yields rising) even then."

Spanish 10-year government bond yields rose 22 basis points on the day to 7.14 percent, their highest during the euro's lifetime. Greece, Ireland and Portugal were forced to seek international bailouts soon after their 10-year bond yields surpassed 7 percent.

Italian 10-year bond yields rose 15 bps to 6.08 percent . The 10-year Spanish yield premium over Italy rose to 108 basis points, also a euro-era high, according to Reuters charts.

The Spanish and Italian stock markets both underperformed the broader European equity market. Spain's IBEX fell 0.9 percent, while Italy's FTSEMIB was down 1.2 percent. The FTSEurofirst reversed early gains and was last down 0.11 percent.

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