* World shares drop as Italy, global growth worries weigh
* Italian shares weaken, bond yields gain on political
* Euro dips as talk of ECB rate cut gains strength
* Fiscal concerns send U.S. oil to $90.50 a barrel
By Richard Hubbard
LONDON, March 4 Political stalemate in Italy and
China's plans for tighter controls on its property sector added
to concern about slower global growth on Monday, pushing world
The euro also weakened, with the poor growth outlook
increasing expectation that the European Central Bank could cut
interest rates to boost the region's economy.
On Wall Street stocks were poised to open lower after $85
billion in government spending cuts began to take effect,
although signs of a compromise among lawmakers to ease their
impact offered some support.
A lack of progress in talks to form a new Italian government
after last week's inconclusive elections weighed most on the
country's stocks and bonds, with 10-year bond yields up
three basis points at 4.82 percent.
Analysts said the falls would have been steeper but for
European Central Bank's promise to support struggling nations
but there remained doubts over how this could be implemented
without a government able to enact tough reforms.
"If the Italians don't have a government (ECB president
Mario) Draghi, who said he would do whatever it takes, can't
help them," said Alastair Winter, chief economist at Daniel
The uncertainty in Italy has caused investor sentiment
across the euro zone to fall sharply in March, according to the
latest Sentix index, ending a six month trend of improvement
that had fuelled hopes of a region-wide recovery.
The weaker sentiment coupled with recent data pointing slow
growth ahead for the 17-nation euro area has increased
speculation the ECB may cut rates at its meeting on Thursday,
keeping the common currency weak.
"Draghi could be more dovish and there could be a rate cut
this week. If not, he could signal something is in the offing,"
said Jane Foley, senior currency strategist at Rabobank.
The euro was down 0.1 percent at around $1.30, just
above Friday's 11-week low of $1.2966.
Meanwhile Britain's pound fell to near a 2-1/2 year
low against the dollar at just above $1.50 after a
weaker-than-expected survey of British construction activity
added to evidence the economy may be sliding into another
The data has increased the likelihood that Bank of England
Governor Mervyn King will get his wish for additional monetary
stimulus at this week's policy setting meeting.
"The construction PMI today was quite weak, but the really
big one is the services PMI which comes tomorrow and if that
comes in weak as well it would increase the possibility of
further action at this week's BoE meeting," said Ian Stannard,
Head of European FX Strategy at Morgan Stanley.
The latest slide left sterling trading at $1.5052, just
above Friday's July 2010 low of $1.4998.
Currency markets were also looking ahead to rate-setting
meetings being held by central banks in Japan, Canada and
Australia as evidence mounts of weaker global growth.
The central banks will be considering data which, while
still pointing to modest global growth in 2013, has pointed to
ongoing weakness in Europe and slower activity in China.
On Sunday China reported that its increasingly important
services sector expanded at the slowest pace in five months in
February, reinforcing the view that the recovery in the world's
second-largest economy remains modest. China's factory growth
also cooled to multi-month lows in February.
The recent run of weak data has weighed on all the major
riskier asset markets, which had gained sharply at the start of
the year on hopes of a gradual global economic recovery.
"The worry is, given how much markets have rallied in
January and February, we might now have an excuse to take money
off the table," said Alpesh Patel, a founder of fund managers
The less rosy economic outlook sent MSCI's world equity
index down around 0.2 percent on Monday at the
start of its fifth consecutive week in the red.
European shares were 0.4 percent lower at midday
led by a 2.3 percent fall in mining stocks, which are
most exposed to changing in the growth outlook. London's FTSE
100 index, Paris's CAC-40 and Frankfurt's DAX
were around 0.4 percent lower.
The political stalemate in Italy, and all the economic
worries have supported safe-haven safe haven assets with U.S.
bond prices inching up in Europe.
The 10-year U.S. Treasury note rose 2/32 in price to yield
1.839 percent, not far from a one-month low of 1.836 percent set
German government bond futures were around 2 ticks
higher at 145.53, having hit a 2013 high of 145.80 earlier in
the day, on top of gains of almost two full points last week.
Meanwhile concerns about the negative economic impact from
the U.S. spending cuts weighed on U.S. crude, which fell
0.15 percent to $90.50 a barrel. Brent was little
changed at $110.50.
President Barack Obama and Congress remain deadlocked over
how to resolve the latest fiscal crisis although there were
signs a compromise was being worked on.
Republican leaders on Sunday promised moves to avoid a
government shutdown on March 27, when funding runs out for most
federal programs while President Obama raised anew the issue of
cutting entitlements which has been a key stumbling bloc.