October 16, 2014 / 9:06 AM / 3 years ago

GLOBAL MARKETS-Europe falls again as global rout resumes

* European shares, periphery euro bonds slump for second
    * U.S. data awaited as U.S. Treasuries nudge 2 percent
    * Dollar steadies, commodities take another step lower
    * Euro skids 11 month low vs yen, gold climbs

    By Marc Jones
    LONDON, Oct 16 (Reuters) - World markets tumbled for a
second day on Thursday, hurt by concerns about the health of
world economy and fears that Europe's debt crisis was waking up
from a two-year siesta.
    European stock markets slumped, with London
, Frankfurt and Paris down 1.8, 1.7 and
2.4 percent by midday and Greek shares down 3 percent for
a loss of 17 percent in a week. 
    Wall Street was also expected to open sharply lower,
with futures prices signalling falls of 1.3 percent for the S&P
500 and 1.4 for the Dow Jones, as market
volatility stayed at its highest since 2011 and investors braced
for a flurry of economic data and earnings. 
    Assets that depend on economic growth, such as shares and
oil, have been hit by a raft of weak indicators from Europe at a
time when other big economies including China, Japan and Brazil
face their own hardships.
    These come as the U.S. Federal Reserve prepares to wind down
later this month the asset purchase programme that has boosted
markets over the past two years. Many observers doubt that new
measures from the European Central Bank will make up for it.
    "Equity markets are going through a growth, inflation and
liquidity scare right now and we are seeing some pretty savage
equity price moves," said Morgan Stanley strategist Graham
    "Positioning and technical factors are driving near-term
asset prices, so investors are effectively having to sell what
they can."        
    The euro skidded to a fresh 11-month low against the
safe-haven yen while euro zone peripheral bonds from Greece to
Portugal and Italy to Spain saw renewed heavy selling. 
    The sell-off had echoes of the zenith of the euro debt
crisis and left investors scurrying for traditional safe havens.
    German 10-year Bund yields -- which fall as
demand for the bonds rises -- hit a fresh record low. U.S.
Treasury yields were nudging 2 percent again and
gold also sprang back up towards a one-month high.
    As well as meek global growth, European markets have been
rattled by fears that the fragile government in Greece, one of
the countries at the centre of the region's debt crisis, could
fall and leave an anti-bailout party to take the reins in
    Greek 10-year bond yields jumped 110 bps again to 8.94
 on Thursday as their biggest sell-off since
October 2008 continued. 
    One of Greece's euro partners told Reuters late on Wednesday
that Athens was changing its mind about quitting its EU/IMF aid
programme next year, while a source said on Thursday the ECB
would make it easier for Greek banks to tap its cheap funding.
    But the sell-off was not confined to Greece. Portuguese
, Spanish and Italian 
10-year yields rose too, jumping 25-45 bps to 3.75, 2.45 and
2.31 percent respectively. 
   They all pulled further away from Germany's benchmark Bunds
, which sank to new low yield of 0.75 percent.
    German Chancellor Angela Merkel told parliament in Berlin on
Thursday that the euro zone must not drop its guard.
    "The crisis has not yet been permanently and sustainably
overcome because the causes, regarding the set-up of the
European economic and currency union and the situation of
individual member states, haven't been eliminated," she said.

    In the currency markets, the U.S. dollar was back on
a firmer footing after one of its sharpest drops of the year on
Wednesday as the Japanese yen, which tends to be favoured
during market turbulence also made gains. 
    Only a month ago, markets <0#FF:> were thinking the Federal
Reserve could raise U.S. rates as early as June next year, but
after the stormy last few weeks traders have pushed back their
expectations to the first quarter of 2016. 
    Wall Street stocks have been slammed too. The benchmark S&P
500 and the MSCI 45-country world index 
have lost almost 10 percent in the last three weeks. U.S. stocks
are still up 170 percent since the depths of the financial
crisis in 2009 though.    
    As U.S. trading began, the dollar's index was at 85.188,
flat on the day. 
    Oil and commodity prices were back under pressure, though.
    Brent crude, which has fallen more than 28 percent
since June amid slow demand and signs that producers are not
cutting output, hovered at a 4-year low of $82.93 a barrel as
U.S. crude slumped to $80.45. 
    Safe-haven gold, meanwhile, was within touching
distance of a one-month high at $1,242, while growth-sensitive
copper fell 1.25 percent after shedding 2.3 percent in
the previous session, its biggest daily drop since March.

 (Additional reporting by Harpreet Bhal in London; editing by
Anna Willard)

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