Global stocks, euro slide on European summit doubts

NEW YORK Mon Jun 25, 2012 5:04pm EDT

A trader looks at screens at the Frankfurt stock exchange June 18, 2012. REUTERS/Alex Domanski

A trader looks at screens at the Frankfurt stock exchange June 18, 2012.

Credit: Reuters/Alex Domanski

NEW YORK (Reuters) - Global stock indexes and the euro sank on Monday on doubts that a European summit this week would move any closer to solving the region's festering debt crisis, a pessimistic outlook that sparked a bid for safe-haven assets.

The euro fell broadly on investor skepticism that the meeting of European Union leaders on Thursday and Friday will produce substantive measures to tackle the debt crisis, now in its third year and buffeting Spain, the euro zone's fourth-largest economy.

Spanish and Italian bond yields rose in a sign of investor skittishness, while the dollar and U.S. government debt prices gained as investors sought safety.

Decliners beat advancers by a ratio of about 3 to 1 on both the New York Stock Exchange and the Nasdaq in light trade.

The Dow Jones industrial average .DJI lost 138.12 points, or 1.09 percent, to close at 12,502.66. The Standard & Poor's 500 Index .SPX fell 21.30 points, or 1.60 percent, to finish at 1,313.72. The Nasdaq Composite Index .IXIC slid 56.26 points, or 1.95 percent, to end at 2,836.16.

The CBOE volatility index .VIX, Wall Street's so-called fear index, shot up 12.5 percent to 20.38, and debt prices surged.

European equity markets also fell.

The FTSEurofirst 300 index .FTEU3 dropped 1.6 percent to close at 986.41 points, its biggest daily decline in more than three weeks as stocks retreated for a third successive session.

The MSCI all-country world equity index .MIWD00000PUS slipped 1.4 percent, while its emerging market index .MSCIEF also fell 1.4 percent.

The price of the benchmark 10-year U.S. Treasury note rose 22/32 to yield 1.61 percent. The 30-year U.S. Treasury bond shot up 27/32 to yield 2.68 percent.

MERKEL: NO EURO-ZONE BONDS

German Chancellor Angela Merkel dashed any lingering hope in financial markets that Europe would issue common euro-zone bonds to underpin its single currency after Spain formally became the fourth country to request a financial rescue.

Merkel said shared debt liability within the euro zone was "economically wrong" and "counterproductive.

The two-day summit in Brussels will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.

"There's been a lot of rhetoric coming out of Europe about the meeting later this week not really accomplishing anything, so everybody is just running from risk to something perceived as being safe," said Jeffrey Given, managing director and portfolio manager at John Hancock Asset Management in Boston.

"People are moving out of stocks and into Treasuries. Once again, everyone is trying to preserve capital," Given said.

Spanish government bonds came under pressure after Spain formally requested aid to recapitalize its banks, but did not specify how much money it would need.

Ten-year Spanish government bonds fell, pushing yields higher to 6.64 percent, while the cost of insuring five-year Spanish debt also rose.

German bonds snapped three weeks of losses to gain on safe-haven buying. The price of bund futures settled up 127 ticks at 142.15 while the yield on 10-year government bonds fell to 1.465 percent.

Pessimism about the European summit's outcome drove all markets.

"There's some nervousness ahead of the EU summit. Reports about the meeting have not intensified hopes or expectations that there will be agreement or any big progress," said Niels Christensen, currency strategist at Nordea.

The euro fell to its lowest in almost two weeks against the dollar and looked set to extend losses.

The euro fell as low as $1.2469, the weakest since June 12, and was last down 0.4 percent at $1.2503. Against the yen, the euro lost 1.4 percent to 99.58 yen.

Brent crude fell below $90 at one point, with concerns about faltering global growth and Europe's debt crisis hitting investor confidence. But the global benchmark for oil ended the day slightly higher after trading lower for most of the session.

The August contract for Brent crude edged up 3 cents to settle at $91.01 a barrel. In contrast, U.S. crude shed 55 cents to settle at $79.21 a barrel.

News that Cyprus became the fifth euro-zone country asking for emergency funding just hours after Spain formally requested help for its banks helped fuel gold prices.

U.S. gold futures for August delivery gained $21.50 to settle at $1,588.40 an ounce.

The Thomson Reuters-Jefferies CRB index .CRB of leading commodities rose 1.09 percent to 270.90, as gains in grains and metals helped to offset a weaker oil market.

(Additional reporting by Emelia Sithole-Matarise; Editing by W Simon, Dave Zimmerman and Jan Paschal)

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Comments (3)
mulholland wrote:
Repaying one year of income impoverishes the debtor. Any fool knows that when he borrows. Pay back shrinks the economy and leaves less to live on. Obama put us in the same pickle as France and the other PIIGS.

Jun 25, 2012 4:05am EDT  --  Report as abuse
huckel wrote:
Europe has a big problem. Because it is politicans that are making bussiness decisoins. The European system doesn t bring in people from the bussiness community to help them with finances. Politics and business are separated. Not the same as the US Its beaurocrats making buissiness desisions and this doesn t work very well.

Jun 25, 2012 7:22am EDT  --  Report as abuse
The Euro summit should be focused on dismembering the EMU, not trying to prop it up and prolong it. The idea of a Redemption Fund allows all parties to withdraw into relatively neutral corners while they figure out some exchange rate mechanism that recognizes reality. Meanwhile, loans only worsen the problem.

Jun 25, 2012 2:26pm EDT  --  Report as abuse
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