GLOBAL MARKETS-Shares, euro hit by Italy, Cyprus concern

Wed Mar 27, 2013 11:26am EDT

* Euro hits four-month lows vs dollar, govt bonds rally
    * 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 possibility of a wider impact the Cyprus
bailout may have on the euro zone.
    Bleak euro zone economic data added to a sour tone in
markets, driving demand for safe haven assets. U.S. Treasuries
debt prices jumped, with benchmark yields falling to their
lowest levels in three weeks and German bunds gained. Gold rose
above $1,600 an ounce.
    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 finalising 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.
    "The overhang of the Cypriot bailout, and especially its
implications for euro zone-wide banking depositors, along with a
dip in confidence and lacklustre Italian debt auctions, have
upset the apple cart for U.S. investors determined to assault
record stock market highs," said Andrew Wilkinson, chief
economic strategist at Miller Tabak + Co, LLC in New York.
    MSCI's index of world shares, which tracks
6000 stocks in 45 countries, fell 0.4 percent to 357.98 points.
European shares dropped 0.5 percent to 1,182.81 points.
    U.S. stocks fell after a robust rally a day earlier sent the
Dow Industrials to another record close and the S&P 500 to
within striking distance of an all-time closing high.
    The Dow Jones industrial average dropped 56.18
points, or 0.39 percent, to 14,503.47. The Standard & Poor's 500
Index fell 5.91 points, or 0.38 percent, to 1,557.86. The
Nasdaq Composite Index lost 10.04 points, or 0.31
percent, to 3,242.45.
    Benchmark U.S. 10-year Treasury notes were up
19/32 in price to yield 1.8454 percent.
    The euro fell as low as $1.2750, the weakest since Nov. 21,
and last traded at $1.2772, 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."
    Data on Wednesday showed confidence in the euro zone's
economy fell more than expected in March after four straight
months of gains. Other reports showed an ongoing slump in
Italian manufacturing and retail sales and contraction in
France's economy at the end of last year.
  
    The dollar slipped 0.2 percent to 94.26 yen, while
the dollar index, which tracks the greenback versus a basket of
major currencies, rose to a more than seven-month high of 83.302
.
    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.
    Gold rebounded from early losses, with spot gold up
0.2 percent at $1,602 an ounce, as investors piled money into
safe-haven investments.
    Brent crude slipped 17 cents to $109.19 a barrel and
U.S. oil fell 65 cents to $95.69 in choppy trade after
the Energy Information Administration said crude stocks rose but
refined product stocks fell in the United States last week, by
more than analysts had expected.
    Worries over the debt crisis in Cyprus pushed the euro
lower, eroding the attractiveness of commodities priced in the
U.S. currency.
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