June 11, 2012 / 1:57 AM / 7 years ago

Global stocks, euro fall on Spain bank bailout uncertainty

NEW YORK (Reuters) - Stocks slid and the euro fell against the U.S. dollar on Monday, while Spain’s bond yields rose as investors worried about details of a $125 billion deal to shore up Spanish banks.

A woman passes an electronic monitor displaying Japan's Nikkei share average (top C) along with other countries' stock price indexes outside a brokerage in Tokyo June 11, 2012. REUTERS/Yuriko Nakao

Wall Street tumbled sharply in a late sell-off after closing its best week of the year on Friday, as concerns over euro zone finances and global growth persisted. .N

Euro-zone finance ministers struck a deal over the weekend to lend Spain up to 100 billion euros ($125 billion) to bail out its banks. Skepticism about the ability of the deal to stop the spread of the debt crisis in Europe was evidenced in renewed appetite for safe-haven U.S. Treasuries.

Spanish bond yields rose as investors worried over how much the deal will add to the country’s fast-rising debt burden. There were concerns that existing bondholders could face losses in any debt restructuring if the euro zone’s permanent bailout fund is used for the rescue. <GVD/EUR>

“This is a realization that Spain, while providing money for its banks, is going to add to its debt-to-GDP ratio, and it’s going to potentially subordinate some of the current Spanish sovereign debt, which doesn’t make those bond holders happy,” said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

The deal was also seen as a temporary solution that does not address the question of how to kick-start growth in the euro zone’s fourth-largest economy.

“They’re borrowing more money, not doing anything about growth,” Zemsky said. “Today we’re not worried about Spain’s banking system falling off a cliff, but other than that, nothing’s changed.”

Highlighting the uncertainty over the deal’s terms, European Union and German officials said Spain would face supervision by international lenders, contradicting comments from Spanish Prime Minister Mariano Rajoy.

Adding to the gloom, a Greek election on Sunday could put Athens on a path to leaving the currency bloc. Cyprus, deeply exposed to Greece, hinted on Monday that it may become the fifth member of the 17-nation euro area to apply for an international bailout.

The Dow Jones industrial average .DJI lost 142.97 points, or 1.14 percent, to 12,411.23. The S&P 500 Index .SPX dropped 16.73 points, or 1.26 percent, to 1,308.93. The Nasdaq Composite .IXIC slid 48.69 points, or 1.70 percent, to 2,809.73.

The Euro STOXX 50 .STOXX50E, the euro zone's leading index of blue-chip shares, fell 0.3 percent and Spain's IBEX 35 .IBEX closed 0.5 percent lower.

Global shares as measured by MSCI .MIWD00000PUS fell 0.3 percent.

The benchmark 10-year U.S. Treasury note was up 11/32, with the yield at 1.5945 percent.

After the initial euphoria on Spain’s bailout faded, the euro gave up its gains against the U.S. dollar. It last traded around $1.2481 after hitting a near three-week high of 1.2668. <USD/>

“The deterioration in euro sentiment following Spain’s bailout news is a clear indication of the extent of negativity surrounding the currency,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.

Traders said any euro bounce should give way to profit-taking before the June 17 Greek elections. A win for parties opposing the austerity terms of the country’s bailout could lead to Greece leaving the euro.

Copper prices rose 1.6 percent, supported by data showing China’s May imports climbed nearly 12 percent from April. The data, however, also showed China’s inflation, industrial output and retail sales flagged in May for a second straight month.

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