September 28, 2012 / 4:05 PM / 5 years ago

GLOBAL MARKETS-Stocks fall on U.S. data but dollar rallies

* Spanish bank audit, French budget in focus
    * U.S. data adds to risk aversion, pushes stock markets
lower
    * Dollar gains on same risk aversion


    NEW YORK, Sept 28 (Reuters) - Stocks slipped, Spain's
borrowing costs climbed and the dollar gained against the euro
on Friday as initial optimism about Madrid's debt-cutting plans
gave way to anxiety over its troubled banks and faltering global
growth.
    A report showing business activity in the U.S. Midwest
contracted this month for the first time since September 2009 
knocked U.S. stocks lower while the dollar strengthened against
the euro as investors shunned risk. 
 
    The MSCI index of world stocks was down 0.7
percent. Madrid's IBEX led the falls, down 1.7 percent
as an early lift from Spain's new round of spending cuts
collapsed.
    "At some point that (Spanish) credibility issue is likely to
come back," said Derek Halpenny, European head of FX research at
Bank of Tokyo Mitsubishi in London. "This is the fifth package -
so the history of previous packages is that they weren't enough
and lacked credibility."
    The Dow Jones industrial average was down 85.51
points, or 0.63 percent, at 13,400.46. The Standard & Poor's 500
Index  was down 9.47 points, or 0.65 percent, at
1,437.68. The Nasdaq Composite Index  was down 22.30
points, or 0.71 percent, at 3,114.30. 
    Despite Friday's losses, the S&P has advanced around 5.5
percent over the past three months.
    Spain will remain in focus, analysts said, with the results
of an independent audit of the country's banks to be published
later in the day, while Moody's Investors Service is expected to
finish a rating review which may cost Madrid its sovereign
investment grade status.
    Investors fretted the euro zone was failing to gain control
over its debt crisis as Spain's borrowing costs rose back above
6 percent and France reported increased debt. The 10-year
Spanish bond last yielded 5.96 percent after
peaking at 6.079 percent. 
    The spending cuts announced by Spain had temporarily raised
hopes the way was open for a bailout by the European Central
Bank, which would buy Spain's debt in an effort to lower its
crippling borrowing costs.
    Euro zone inflation data added to upward pressure on the
single currency as a surprise rise in Eurostat's flash September
reading cast doubts over the near-term chances of another
interest rate cut from the ECB.
    France is also under the microscope and President Francois
Hollande's fiscal credibility on the line. His first annual
budget, France's toughest in 30 years, raised taxes to bring in
30 billion euros ($39 billion) to keep deficit-cutting promises.
 
    France announced its public-sector debt rose almost 2
percent to 91 percent of gross domestic product. Greece's
battered economy showed little sign of recovery as the latest
retail data showed sales plunged 9.1 percent year-on-year in
July.    
  
    The euro fell 0.5 percent to $1.2850 as risk aversion
rose after the U.S. data. The dollar gained 0.5 percent against
the yen, while the euro fell 0.1 percent against the
Japanese currency.
    But despite its wobbling economy and the negative sentiment
it conveys for risk assets elsewhere in the world, China's yuan
hit an all-time high versus the dollar. 
    The benchmark 10-year U.S. Treasury note was up
9/32, with the yield at 1.6232 percent.
    "We had been seeing good data recently, but now we seem to
be following the slowdown in China and Europe and we're seeing
weakness," said Paul Nolte, managing director at Dearborn
Partners in Chicago.    
    In commodity markets, gold surrendered gains on Friday as
the dollar rallied on risk aversion but the metal stayed on
track for its biggest quarterly gain in more than two years on
the back of this month's central bank easing measures. 
    Oil markets were steady with those investors more inclined
to look at tight gasoline supply in the United States.  
    Brent crude futures for November were flat at $112.00
 per barrel. U.S. crude rose 0.1 percent to
$91.95.

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