* World shares dip but supported by growth outlook
* Spanish and Italian political fears hit bonds
* U.S. stocks seen retreating from 5-year highs
* Euro dips below $1.36, Oil falls $1 a barrel
By Richard Hubbard
London, Feb 4 World equity markets and
commodities fell on Monday after last week's strong gains, with
a rise in political uncertainty in southern Europe worrying some
investors and sending the euro lower.
U.S. shares were poised to join the slide when Wall Street
reopens as the market retreats from the five-year highs hit on
The global economic outlook brightened substantially last
week when data showed U.S. factory activity quickened in January
and hiring increased, while a euro zone business activity survey
suggested the worst of the region's downturn may be over.
On Sunday, China added to the optimism by reporting that its
services sector had grown for a fourth straight month in
January, although the slim gain also signalled that the global
recovery underway is a modest one.
In Europe, political developments in Spain and Italy
reminded investors that there were still many risks ahead,
dampening the positive mood and encouraging some sellers.
Over the weekend Spain's opposition Socialist Party called
on Prime Minister Mariano Rajoy to resign over a corruption
scandal, as an opinion poll showed the lowest support on record
for his centre-right People's Party (PP).
"If Rajoy were really forced to resign, if we were to have
new elections in Spain, that would not help the improvement
we've seen in financial markets," Tobias Blattner, European
economist at Daiwa Capital Markets, said.
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.
Spanish 10-year government bond yields rose 16
basis points to 5.38 percent on Monday, while equivalent Italian
yields were 8 bps higher at 4.41 percent.
The yield gains reversed the strong start to the year on all
Europe's peripheral debt markets helped by the easy supply of
cash from central banks and the promise that the European
Central Bank will buy bonds of struggling states if necessary.
Analysts said the yield hike may be more precautionary
rather than a reflection of a significant change in sentiment.
"We're not getting any sense that people panicking or
selling the market aggressively. It seems to be price action
more than anything else, which reflects market nervousness and
uncertainty," said Don Smith, an economist at brokers ICAP.
The better global economic outlook was still supporting a
shift out of traditional safe-haven securities such as German
and U.S. government debt.
Ten-year U.S. Treasury yields hit their highest level since
April last year, rising 3.4 basis points on Monday to 2.06
percent, while equivalent German bonds gained 2.0
basis points to 1.69 percent.
The uncertainty in Spain and Italy, along with more weak
Spanish employment data, drove the euro down against the dollar.
The common currency fell 0.5 percent to $1.3570, off a high
of $1.3710 on Friday, its strongest level since late 2011.
Analysts said this too was likely to be only a temporary
setback, and the euro would resume its move higher if, as
expected, the ECB leaves interest rates unchanged on Thursday
and does not express any concerns about the recent gains.
"Once the ECB fails to cut rates on Thursday, which is our
view, the euro will be free to move higher again, but with the
uncertainty surrounding the meeting the euro will likely weaken
slightly or trade sideways," said Adam Myers, senior FX
strategist at Calyon.
Equity markets were looking to consolidate after the strong
economic data last week had taken many market benchmark indexes
to fresh multi-year highs.
MSCI's world equity index dipped 0.25
percent on Monday, still not far from a 23-month peak and just a
few points shy of its best level since 2008.
The FTSEurofirst 300 index of top European shares
fell one percent to just under a two-year high, while Germany's
DAX dipped 1.6 percent to 7,703 points, moving away
from its 2007 all-time high of 8,151.
Rising confidence in the global economic recovery was also
underpinning commodities such as oil and copper, although prices
moved in narrow ranges at the start of a week when several major
central banks hold policy meetings.
Brent crude was 78 cents lower at $115.98 per barrel
down from a 4-1/2 month high of $117.07 on Friday, while U.S.
crude futures fell more than $1 per barrel as the oil
market consolidated after eight weeks of rapid rises, its
longest winning streak since July-August 2004.
"The market is long due a correction. Still, there is no
point standing in front of a moving train," VTB Capital oil
strategist Andrey Kryuchenkov said.