--European stocks slump; Spanish market hit hardest
--Euro under pressure against major rivals
--Spanish borrowing costs surge to euro-era highs
By Michele Maatouk
European stocks slumped, along with the euro, and Spanish government
bond yields surged to fresh euro-era highs Monday as worries about the
euro-zone debt crisis gathered pace.
The biggest moves took place in peripheral bond markets--Spain's in
particular. The yield on the 10-year Spanish government bond yield was
up 23 basis points at 7.45%, while the five-year yield was 39 basis
points higher at 7.11%, according to Tradeweb, both of which are
euro-era highs. At the same time, the two-year Spanish government bond
yield was up 43 basis points at 6.04%
In equity markets, Spanish stocks were the worst hit amid mounting
concern it may require a full sovereign bailout. At 0810 GMT, the
benchmark IBEX-35 was down 2.8% at 6069.70.
On Friday, investors were spooked by news that Spain's Valencia region
plans to seek help from the central government to refinance its debt
and by downward revisions to Spain's 2013 and 2014 growth forecasts.
Fears that a full-blown sovereign bailout may be on the cards were
exacerbated over the weekend after a report in Spanish daily El Pais
suggested that six more regions, including Catalonia, are set to
request aid from the Spanish government. Meanwhile, a local newspaper
report said that the Spanish region of Murcia could apply to access
government bailout funds in September, according to the region's
president Ramon Luis Valcarcel.
"The panic moves of Friday have increased concerns about the
possibility of Spain seeking a full bailout and becoming the next
program country to tap the EU rescue mechanisms instead of the primary
debt markets as funding costs increase even for the front end of the
curve," said Lloyds Bank Corporate Markets.
Elsewhere, the benchmark Stoxx 600 was down 1.4% at 254.51. The U.K.'s
FTSE 100 was down 1.4% a 5570.75, Germany's DAX was off 1.3% at
6544.57 and France's CAC-40 was down 1.5% at 3145.33. Italy's FTSE Mib
was off 2.4% at 12,756.17 and Greece's ASE Composite was 2.6% weaker
at 614.71. And as investors scurried to safety, the September bund
contract was up 31 ticks at 146.08
Greece was also keeping investors on edge Monday. According to a
report in German newspaper Der Spiegel, the International Monetary
Fund has signaled to Brussels that it will no longer take part in
financial aid for Greece, which means the country could run out of
money as early as September.
The troika of international inspectors is due in Athens on Tuesday to
start the first review of the second bailout, but before that, the
Greek government is expected to announce billions of euros of
additional budget cuts. The European Central Bank said on Friday that
it won't allow debt securities backed or issued by the Greek
government to be used as collateral any longer, pending the results of
the troika's review.
In stocks, banks and basic resources took the biggest hit, with the
Stoxx Europe 600 indexes for each down 2.8%. Among individual stocks,
Italian and Spanish banks were the standout losers; UniCredit and
Intesa Sanpaolo were down 4% and 4.7%, respectively, while Banco
Bilbao Vizcaya Argentaria was off 4.4% and Banco Santander slid 3.2%.
Other than euro-zone consumer confidence data at 1400 GMT, there is
little of note on Monday's economic calendar. Looking ahead to the
rest of the week, the first releases of second-quarter U.K. and U.S.
gross domestic product figures are due on Wednesday and Friday,
respectively.
In foreign exchanges, the euro remained under pressure against major
rivals, hovering at two-year lows against the dollar. At 0810 GMT, the
single currency was at $1.2097 from $1.2155 late Friday in New York.
"Ongoing concerns about Spain and focus turning back to Greece this
week with the Troika back in Athens tomorrow will likely see the euro
downside bias continue," said Lloyds. The euro was at Y94.43 from
Y95.42, while the dollar was at Y78.05 from Y78.48.
Commodity prices were also under the cosh. September Nymex crude oil
futures were down $2.63 at $89.20 a barrel and the August Brent oil
contract was down $2.93 at $103.90. Spot gold was at $1,573.00, down
by $13.10.
Write to Michele Maatouk at michele.maatouk@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
July 23, 2012 04:36 ET (08:36 GMT)
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