NEW YORK (Reuters) - Worries over a Greek default pressured the euro against the Swiss franc on Monday, while a rating agency’s downgrade of Greece compounded fears of more economic turmoil and reduced energy demand, pushing U.S. oil prices lower.
The single currency fell to a record low against the safe-haven Swiss franc as the cost of insuring Greek sovereign debt against default soared to an all-time high.
Despite jitters over Greece, U.S. stocks finished flat, recovering from a mild sell-off tied to Standard & Poor’s downgrade of Greece to close to default status.
A steadier Wall Street kept gold near its session lows and put downward pressure on low-risk government bonds.
European leaders are due to finalize a new rescue package worth about 120 billion euros for Greece at a Brussels summit on June 23-24, but deep divisions remain about how to get the private sector involved. Concerns are growing that Greece will eventually have to restructure its 340-billion-euro debt load.
“If a compromise cannot be reached between these positions, there is a chance that the second rescue effort disintegrates, leaving Greece at the mercy of the bond markets,” said Karl Schamotta, market strategist at Western Union Business Solutions, in Victoria, British Columbia.
“One suspects that policymakers will avoid such a dire outcome, but the uncertainty is weighing on investment decisions,” he said.
This uncertainty intensified on Monday after S&P slashed Greece’s credit rating to lowest-rated in the world, saying the debt-laden country is increasingly likely to restructure its debt in a way the agency would consider a default.
The euro fell against the Swiss franc on worries over the cost of a Greece bailout. But it gained versus the U.S. dollar on expectations that euro zone interest rates would remain higher than those in the United States.
The euro touched a record low 1.2004 Swiss francs on the EBS trading platform. The Swiss franc is seen as a global barometer for risk aversion.
Against the dollar, the euro was up around 0.2 percent at $1.44 after central bank buying erased early losses.
Talk of a Greek default stoked bets of less oil demand on fears of another global slowdown induced by Europe’s fiscal woes. The latest signs of a slowing Chinese economy also heightened worries of slowing demand for commodities.
U.S. crude oil fell 2 percent to $97.30 a barrel. In back-to-back sessions, it has lost 3.8 percent.
The 19-commodity Reuters-Jefferies CRB index .CRB fell 1 percent, posting its biggest two-day drop in a month.
U.S. oil also fell on a report of more supply from Saudi Arabia. The world’s biggest oil exporter will raise output to 10 million barrels per day in July, Saudi newspaper al-Hayat reported on Friday, as Riyadh goes it alone in pumping more outside official OPEC policy.
However, Brent oil in London traded higher, with its premium over its U.S. counterpart hitting a record high of more than $21 a barrel.
The S&P downgrade of Greece was a reminder of that country’s grim fiscal situation. But it was not a game-changer that discouraged investors looking to purchase cheap stocks after they had fallen for six straight weeks.
“It’s bringing in a bit of buying. People are just nibbling,” said James Paulsen, chief investment officer at Wells Capital Management in Minneapolis, which has $340 billion in assets under management.
Weaker Chinese data fueled concerns about slowing global growth and knocked non-U.S. shares to a 12-week low, according to the MSCl Global Equity Index .MIWD00000PUS. But the index ended up 0.02 percent on the day in chopping trading.
In U.S. trading, the Dow Jones industrial average .DJI ended up 1.06 points, or 0.01 percent, at 11,952.97. The Standard & Poor's 500 Index .SPX was up 0.85 points, or 0.07 percent, at 1,271.83. The Nasdaq Composite Index .IXIC was down 4.04 points, or 0.15 percent, at 2,639.69.
Nikkei futures in Chicago ended at 9,435, compared with the Osaka close of 9,460.
Bullion prices fell 1 percent on the day after the S&P move on Greece reduced the euro’s gain against the dollar. Spot gold touched a session low of 1,511.11 an ounce.
In government debt trading, benchmark U.S. 10-year yields hovered near a six-month low just under 3 percent, while September German Bund futures ended flat after hitting a contract high of 126.11.
Five-year credit default swaps on Greek sovereign debt rose to a record high of 1,613.33 basis points at the close, prior to the S&P downgrade, according to data monitor Markit.
Additional reporting by Chuck Mikolajczak, Robert Gibbons, Wanfeng Zhou, Chris Reese and Frank Tang; Editing by Dan Grebler