GLOBAL MARKETS-Shares, euro fall sharply on renewed euro zone fears

Mon Feb 4, 2013 4:34pm EST

* World stock index posts worst day since November
    * Spanish and Italian political fears hit bonds, shares
    * Euro falls ahead of ECB; U.S. Treasuries rally

    By Wanfeng Zhou
    NEW YORK, Feb 4 (Reuters) - Major stock markets fell on
Monday and the euro tumbled from multi-month highs against the
dollar and yen as political uncertainty in Spain and Italy
revived worries that the steps taken to rein in the euro zone
debt crisis could unravel.
    The MSCI world equity index slipped 1.1
percent and was on track for its worst day since November. U.S.
shares retreated and the S&P 500 had its worst day of the year,
while European stocks posted their lowest close of the year as
shares in Spain and Italy fell sharply.
    Spanish 10-year bond yields climbed to
six-week highs after Prime Minister Mariano Rajoy faced calls to
resign over a corruption scandal involving allegations in the
media that he received payments from a slush fund. Rajoy denies
any wrongdoing. 
    "The prospect of Rajoy's resignation has roiled the
markets," said Boris Schlossberg, managing director of FX
strategy at BK Asset Management in New York. 
    "Any fresh political instability in (the) euro zone's most
important periphery economy could undermine the sense of
investor confidence and send Spanish yields higher, making it
much more difficult for the government to implement its
austerity measures."
    In Italy, former Prime Minister Silvio Berlusconi, one of
the top candidates in this month's general election, is seeing a
resurgence in popularity, which threatens the reforms
implemented by the outgoing technocrat government.
 
    U.S. stocks fell after a disappointing report on factory
orders, retreating from a rally on Friday that drove the S&P 500
to a five-year high and the Dow to close above 14,000 points for
the first time since October 2007.
    "The market is extended and due for a pullback. I think
people are looking for an excuse to make sales, and there (is)
the concern coming from Europe," said Michael James, senior
trader at Wedbush Morgan in Los Angeles.
    The Dow Jones industrial average ended down 129.71
points, or 0.93 percent, at 13,880.08. The Standard & Poor's 500
Index closed down 17.46 points, or 1.15 percent, at
1,495.71. The Nasdaq Composite Index fell 47.93 points,
or 1.51 percent, to 3,131.17. 
    The FTSEurofirst 300 ended down 1.47 percent at
1,150.91, its lowest close since Dec. 31. It had hit a near
two-year peak of 1,178.55 in late January.
    Spain's IBEX fell 3.8 percent, and Italy's FTSE MIB
 shed 4.5 percent.

 
    
    EURO RETREATS BEFORE ECB
    Spanish 10-year government bond yields rose as
much as 24 basis points on the day to 5.45 percent, their
highest level since mid-December, while Italian yields
 jumped 15 basis points to 4.48 percent.
    The euro traded at $1.3515, down 0.9 percent. It had
risen to $1.3711 on Friday, a level unseen since late 2011.
    But the euro's dip may prove temporary, strategists said,
and it could resume its move up if the European Central Bank,
which is to hold a policy meeting on Thursday, expresses no
concern about the currency's recent gains.
    Against the yen, the euro was down 1.6 percent at 124.78 yen
, off a 33-month high of 126.96 yen struck last week.
The dollar fell 0.4 percent to 92.29 yen.
    In commodities trading, Brent oil fell to a low of
$115.32 per barrel before recovering slightly to settle at
$115.60, down $1.16. Brent had risen for three straight weeks. 
    U.S. crude dropped $1.60 to settle at $96.17 per
barrel after rising for eight consecutive weeks, the longest
such winning streak since July-August 2004.
    Oil prices had rallied in recent weeks on signs of an
improving global economic outlook and geopolitical tensions in
the Middle East.
    Spot gold rose 0.4 percent to around $1,673 an ounce.
    U.S. Treasuries prices rose as higher yields and a pullback
in the stock market drew buyers. The benchmark 10-year U.S.
Treasury note was up 18/32, the yield at 1.9601 percent
.
    Overnight, Asian shares climbed to 18-month highs. China
added to the optimism about the global economy by reporting on
Sunday that its services sector had grown for a fourth straight
month in January, although the slim gain signaled that the
global recovery under way is a modest one.
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