March 19, 2013 / 6:45 PM / 5 years ago

GLOBAL MARKETS-Shares, euro fall on continued Cyprus concerns

* European shares fall with Cyprus still a concern
    * Uncertainty over Europe overshadows U.S. housing data
    * German government bonds rise, periphery bonds dip
    * Crude oil extends declines in afternoon on euro woes


    By Ryan Vlastelica
    NEW YORK, March 19 (Reuters) - Global stock markets fell on
Tuesday, extending the previous day's decline as investors
continued to fret about Cyprus and the possible effect on the
euro zone should it collapse.
    Markets have been volatile, with U.S. stocks briefly rising
in early trading as investors used strong housing data as an
opportunity to pick up beaten down shares. In afternoon trading,
however, shares returned to negative territory.
    European stocks, along with the euro and oil, had been
pressured on concerns over the risk of failure for a bailout
deal aimed at saving Cyprus from default and its banks from
collapse. 
    The Cypriot parliament rejected plans agreed by euro zone
officials over the weekend to part-fund a 10 billion euro rescue
of the island by seizing between 6.75 percent and 9.9 percent of
deposits in Cypriot banks. 
    A failure for parliament to come to an agreement would put
the bailout in jeopardy and raise the risk of default.
 
    "This could be a flash in the pan but it is a reminder to
investors that the situation in Europe is not resolved. It could
be the start of a spring correction just as we saw in 2011 and
2012," Andrew Milligan, global head of strategy for Standard
Life Investments in Edinburgh, said in a note.
    The euro fell and hit a session low against the
dollar, while European shares closed 0.4 percent lower.
London's FTSE 100 slipped 0.3 percent and Paris's CAC-40
 fell 1.3 percent while Frankfurt's DAX fell 0.8
percent. MSCI's measure of global stock markets 
was off 0.5 percent.
    In the United States, the Dow Jones industrial average
 was down 33.07 points, or 0.23 percent, at 14,418.99. The
Standard & Poor's 500 Index was down 8.31 points, or 0.54
percent, at 1,543.79. The Nasdaq Composite Index was
down 20.61 points, or 0.64 percent, at 3,216.98. 
    The early gains in U.S. stocks came on data showing that
groundbreaking for new homes climbed in February, a sign the
nation's housing market recovery was gathering steam.
 
    According to the latest Reuters poll of analysts, the S&P
500 is expected soon to hit a record high, though the blistering
rise in equities so far in 2013 is unlikely to last.
 
 

    BUND BOUNCE
    The plan to seize deposits in Cyprus shredded confidence in
the 100,000 euro ($129,600) guarantee on savings offered across
the European Union and raised fears of bank runs in other
debt-strained countries, putting safe-haven German government
bonds again in demand.
    The Bund future built gains steadily through the
morning before solid ZEW data tempered some of the demand,
leaving it up 0.6 percent at 144.74. The benchmark 10-year U.S.
Treasury note was up 15/32, the yield at 1.9026
percent. 
    "We are just waiting for another headline out of Cyprus,"
one trader said, adding that buying Bunds "is the only trade to
have on."
    
    ECB BACKSTOP
    While Cyprus' problems are threatening to disrupt the calm
brought to the bloc over the last eight months by the European
Central Bank's promise to protect troubled countries, that
guarantee has also kept the market reaction muted.
    With stock markets in many parts of the world at or near
long-term highs, analysts are taking the drops of the past few
sessions in stride.
    With the exception of German government bonds, the knee-jerk
flight to safety seen on Monday was showing signs of subsiding.
    The cost of insuring the debt of southern euro zone
countries against default via credit default swaps was virtually
unchanged at midday, and the dollar rose 0.3 percent against a
basket of major currencies after Monday's rise.
    In Asian trading, Japanese stocks jumped 2 percent and the
recovery in general risk sentiment supported Asian credit
markets, narrowing the spread on the iTraxx Asia ex-Japan
investment-grade index by five basis points. 
    Brent crude oil remained sensitive to the jitters,
however, falling 2 percent to $107.40. If the situation in the
euro zone deteriorates again, analysts warn it could affect the
health of the global economy.
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