* Portugal bonds, stocks slide as political crisis deepens
* European shares fall 1.2 percent, periphery bonds tumble
* Wall Street expected to open lower, ADP report bright
* Asian stocks fall as China services growth hits nine-month
* Oil rises on worries over Mideast tensions
By Marc Jones
LONDON, July 3 Portugal's 10-year bond yield
shot above 8 percent and stock markets across Europe tumbled on
Wednesday as deepening political turmoil in the bailed-out euro
zone member threatened to reignite the bloc's crisis.
Signs that Chinese growth is slowing also weighed on shares,
while oil jumped to a 14-month high on fears that unrest in
Egypt could unsettle the Middle East and disrupt crude supply.
U.S. stock index futures pointed to early falls for Wall
Street too, with traders eyeing a trio of economic data releases
which could give some insight into the strength of Friday's
closely-watched payroll report.
The prospect of more resignations from Portugal's government
after this week's surprise departure of its finance minister
dominated European trading, however, amid worries it could lead
to snap elections and derail its post-EU/IMF bailout recovery.
Portuguese 10-year bond yields topped 8
percent and its stock market dropped 6 percent to lead
the list of fallers across European and Asian markets.
"Something had to happen, two months in a row with no action
in the euro zone is very unusual," said Uwe Zöllner, head of
Pan-European equities at Franklin Equity Group.
"People are nervous at the moment anyway. We have seen a
good start to the year and now we get the mixed data from China,
and we see headlines again about political unrest in
oil-producing countries, so people are probably taking the news
from Portugal worse than they otherwise would have done."
Spanish and Italian yields also rose and the cost of
insuring periphery debt against default jumped, with nervousness
over whether Greece will receive its next tranche of bailout
money adding to fears the debt crisis will erupt again.
The broad sell-off in riskier European assets had largely
stabilised by 1300 GMT, leaving the region's FTSEurofirst 300
share index off its lows but still down 1 percent while
the euro was hovering at its lowest level since late May.
The day had got off to a downbeat start, with Asian stock
markets falling after official Chinese figures showed growth in
the services sector sagged to its weakest pace in nine months,
adding to signs of a slowdown in the world's No. 2 economy.
Growing unrest in Egypt and fears it could disrupt Middle
East supplies drove oil prices higher for a third day, sending
U.S. crude above $100 barrel for the first time in 14 months.
The Egyptian military has set a deadline of about 5:00 p.m.
local time (1500 GMT) for President Mohamed Mursi to agree to a
power-sharing deal with his rivals, an ultimatum that Mursi has
firmly rejected. Traders are also expecting data due later to
show a sharp drop in crude oil stocks held by top consumer the
"Middle East tensions are always going to put a cushion
under the price while there is some tight supply going on in the
U.S.," Ben Le Brun, a markets analyst at OptionsXpress in
Sydney, said. "It's double-positive news for crude."
Countering the softer China numbers, U.S. traders prepared
for a shortened pre-July 4 session and the payrolls data on
Friday with figures showing firms stepped up hiring in June and
new applications for unemployment benefits fell.
The first rise in European retail sales for four months and
a more-than-one-year high for Markit's final composite Euro zone
Purchasing Managers' Index (PMI) pointed to stabilisation too,
but it could not overcome the concerns over Portugal and
Investors were instead heading for traditional safe-haven
assets, like German Bunds, the dollar and the yen
The dollar hit a one-month high against a basket of major
currencies before a slight dip, but stayed firm after a recent
string of generally solid U.S. economic data supported the view
that the Fed could scale back its stimulus later this year.
The dollar index, which measures the greenback's
value against a basket of major currencies, rose to as high as
83.635, the highest since late May, while Portugal's troubles
pushed the euro to $1.2923, its lowest in over a month.
"Portugal is by far the biggest focus," said Derek Halpenny,
European Head of Global Currency Research at BTMU.
"For the euro this is a slow grind lower ... The euro has
been fairly resilient against the dollar and the market will
initially treat this with caution but it is clearly a euro