NEW YORK World equity markets sold off and the euro set new two-year lows against the U.S. dollar on Monday after reports that more indebted regions in Spain need financial aid fueled fears that the country may need a bailout.
Investors fled to safe-haven government debt and the dollar as Spain's plight, concerns about economic growth and renewed market talk of a possible Greek exit from the euro zone drove investment decisions.
The euro slid as low as $1.2067, its weakest since June 2010, but later pared losses to trade slightly higher at $1.2131. Against the yen, the euro slid near a 12-year low at 94.22 but later trimmed losses.
Crude futures fell more than 3 percent, and yields on U.S., German and British government debt hit record lows. In a sign of investor angst, yields on Spanish government debt hit euro-era highs.
Bond yields, as well as U.S. stocks and oil prices, eased from their session lows. The broad Standard & Poor's 500 index closed down less than 1 percent after tumbling nearly 2 percent.
Five- and 10-year German government bond yields set new lows and U.S. Treasury-note yields hit their lowest since the early 1800s. Ten-year U.S. Treasuries yields fell as low as 1.3977 percent, last trading up 6/32 in price to yield 1.4381 percent.
Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to a euro-era high of more than 7.5 percent, above the 7 percent level many investors view as sustainable.
How Spain's 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euros in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.
"Given the market reaction on the back of the news that more and more regions are looking to tap into the liquidity fund ... it will be very difficult for Spain to circumvent further support for itself," said Norbert Aul, a rate strategist at RBC Capital Markets.
Spanish Economy Minister Luis de Guindos has insisted Spain does not need a full sovereign bailout, such as those approved for Greece, Ireland and Portugal.
The International Monetary Fund dismissed a weekend news report that it may refuse to continue supporting Greece as it prepares for talks with the new Greek government on its international bailout.
Worry over Greece resurfaced with international lenders scheduled to gather in Athens on Tuesday to discuss the terms of further rescue payments after its prime minister said the country was mired in a "Great Depression.
"All it does is it brings up that whole crisis again - all that tells you, it really didn't go away," said Ken Polcari, managing director at ICAP Equities in New York.
Weak results from McDonald's Corp (MCD.N) helped push stocks lower on Wall Street. Shares of materials companies were among the day's weakest, hurt by declines in commodities prices.
McDonald's was the latest earnings casualty among large multinationals after it posted lower-than-expected profit, citing slower global growth and a stronger dollar. McDonald's slid 2.9 percent to $88.94 and was the biggest drag on the Dow.
The Dow Jones industrial average .DJI closed down 101.11 points, or 0.79 percent, at 12,721.46. The Standard & Poor's 500 Index .SPX fell 12.14 points, or 0.89 percent, at 1,350.52. The Nasdaq Composite Index .IXIC slid 35.15 points, or 1.20 percent, at 2,890.15.
Stocks in Europe ended more than 2 percent lower. The FTSE Eurofirst 300 index .FTEU3 of top European shares fell 2.4 percent to close at 1024.27 points, while the euro zone's blue-chip Euro STOXX 50 index .STOXX50E dropped 2.6 percent to 2,179.31 points, breaking below a key support level.
MSCI's emerging markets index .MSCIEF was down 2.7 percent and its all-country world equity index .MIWD00000PUS fell 1.6 percent, trimming losses of more than 2 percent.
Spain's main share index, the Ibex .IBEX, closed down 1.1 percent, having dropped more than 4 percent earlier in the session.
Brent crude, the world benchmark, briefly slipped below $103 a barrel. Brent settled $3.57 lower at $103.26 a barrel.
U.S. crude for September delivery settled $3.69 a barrel lower at $88.14.
The Reuters/Jefferies CRB Index .CRB of 19 commodities was down 5.69 points, or 1.87 percent, at 298.88.
Spot gold prices fell $6.69 to $1,576 an ounce. U.S. COMEX August gold futures settled $5.40 lower at $1,577.40 an ounce.
(Editing by Kenneth Barry)