CORRECTED-GLOBAL MARKETS-Shares, euro tumble on Italy, Cyprus worries

Wed Mar 27, 2013 11:23am EDT

(Corrects spelling of Blackrock's Koesterich in para 6)
    * Euro hits four-month lows vs dollar, government bonds
rally
    * Global shares slide on euro zone worries
    * Italy's five-year debt cost highest since Oct 2012

    By Wanfeng Zhou
    NEW YORK, March 27 (Reuters) - Major stock markets fell and
the euro slumped to a four-month low against the dollar on
Wednesday, hit by a disappointing Italian bond auction and
concern about the wider impact of the Cyprus bailout on the euro
zone.
    Safe-haven government bonds rallied. U.S. Treasuries debt
prices jumped, driving benchmark yields to their lowest levels
in three weeks. German bunds also gained.
    Italy, at a debt auction on Wednesday, paid more to borrow
over five years than it has since October as lack of progress in
forming a new government and worries about Cyprus's bailout hurt
demand. 
     Cyprus is finalizing capital control measures to prevent a
run on banks by depositors after the country agreed a bailout
deal that will wipe out some senior bank bondholders and impose
losses on large depositors. 
    The worry among investors is that despite attempts by some
officials to dismiss the idea, the plan could become a blueprint
for any future euro zone bailout.
    "Europe is a lingering threat with the fragility of its
banking system," said Russ Koesterich, global chief investment
strategist at BlackRock in San Francisco.
    MSCI's index of world shares, which tracks
6000 stocks in 45 countries, fell 0.6 percent to 357.26 points.
European shares dropped 0.7 percent to 1,180.22 points.
    U.S. stocks fell in early trade. A robust rally a day
earlier sent the Dow Industrials to another record close and the
S&P 500 to within striking distance of its all-time closing
high.
    The Dow Jones industrial average dropped 84.64
points, or 0.58 percent, to 14,475.01. The Standard & Poor's 500
Index slipped 9.02 points, or 0.58 percent, to 1,554.75.
The Nasdaq Composite Index lost 19.77 points, or 0.61
percent, to 3,232.71. 
    Benchmark U.S. 10-year Treasury notes were up
18/32 in price to yield 1.8471 percent.
    The euro fell as low as $1.2755, the weakest since late
November, and last traded at $1.2767, down 0.7 percent on
the day.
    "Rising Italian borrowing costs and its political situation
are both negatives," said Greg Anderson, G10 strategist at
Citigroup in New York. "Investors are not overly short the euro,
so there is plenty of scope for the euro to test the lows of the
past cycle."
    Bleak euro zone data added to the bearish sentiment. 
    The first fall in euro zone economic confidence after four
months of gains in March came on top of an ongoing slump in
Italian manufacturing and retail sales and a confirmation that
France's economy contracted at the end of last
year.  
    German government Bund futures, an asset that
investors value in times of increased tension, rose 75 ticks,
their biggest jump since inconclusive Italian elections last
month rattled markets.
    Brent crude slipped 27 cents to $109.09 a barrel,
after rising for a third straight day in the previous session.
U.S. oil fell 70 cents to $95.64.   

 (Additional reporting by Richard Leong, Angela Moon and Julie
Haviv in New York and Marc Jones in London; Editing by Chizu
Nomiyama)
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