Euro at 18-month low on debt woes

By Walter Brandimarte

NEW YORK (BestGrowthStock) – The euro slid to an 18-month low versus the dollar and global shares fell sharply on Friday over fears that Europe’s fiscal austerity plans may derail economic recovery.

Gold prices hit an all-time high as the European financial situation spurred the appetite for safer investments. The precious metal erased gains later but still ended the week about 2 percent higher.

Safe-haven buying also boosted prices of U.S. Treasury debt and the value of the U.S. dollar, which climbed to its highest level in a year against a basket of currencies.

Stocks and oil prices plunged despite data showing U.S. retail sales and industrial production rose in April. The S&P 500 and the Nasdaq fell nearly 2 percent while U.S. crude oil prices slumped nearly 4 percent.

European authorities announced a rescue plan of nearly $1 trillion for Greece and other indebted euro zone countries this week involving tough spending cuts, but investors were skeptical about weak public finances.

“If you look long-term, everyone is worried about what these austerity measures will mean in terms of growth,” said Kathy Lien, director of currency research at GFT in New York.

The Dow Jones industrial average (.DJI: ) ended down 162.79 points, or 1.51 percent, at 10,620.16, while the Standard & Poor’s 500 Index (.SPX: ) lost 21.76 points, or 1.88 percent, to 1,135.68. The Nasdaq Composite Index (.IXIC: ) slumped 47.51 points, or 1.98 percent, to 2,346.85.

Shares of credit card companies tumbled a day after the U.S. Senate voted to limit fees charged on credit and debit card transactions. Visa Inc (V.N: ) lost 9.9 percent to $77.26 and MasterCard Inc (MA.N: ) shed 8.5 percent to $212.45.

The MSCI world equity index (.MIWD00000PUS: ) plunged 2.4 percent, while the FTSEurofirst 300 index (.FTEU3: ) dropped 3.4 percent.

Banks took a beating in Europe, with the STOXX Europe 600 banking index (.SX7P: ) falling 5.2 percent. Spanish banks Santander (SAN.MC: ) and BBVA (BBVA.MC: ) fell 9.0 percent and 7.6 percent, respectively.

U.S. crude oil fell 3.75 percent to $71.61 a barrel, the lowest close since February 5.

EURO BATTERED

The EU’s emergency assistance plan has done little to bolster confidence in the euro, a concern highlighted by U.S. While House Economic Adviser Paul Volcker. On Thursday Volcker said European debt troubles could undermine the single currency.

The euro slid as low $1.2358 on electronic trading platform EBS, the lowest since October 2008. It last traded at $1.2370, 1.3 percent weaker.

“The euro hasn’t derived any benefits from any budget cuts from Spain and Portugal,” said Chris Turner, head of FX strategy at ING, which forecasts the single European currency will be at $1.15 in six months.

“People are either concluding that these cuts will be unsuccessful and debt sustainability remains a key issue, or they will be successful in aggressive fiscal tightening and that these economies would slow aggressively and the European Central Bank has to keep interest rates low,” he added.

Gold prices, which often climb in times of turmoil in financial markets, soared to a record high of $1,248.95.

But investors started selling the metal when it failed to break above the psychological level of $1,250. Part of the sales also came from investors who needed to sell gold to cover for losses in stock markets, traders said.

The precious metal later traded practically flat at $1,230.05 an ounce.

The safe-haven appeal of U.S. Treasuries also rose dramatically, with the price of the benchmark 10-year note up 21/32, with the yield at 3.4571 percent.

Investors’ anxiety toward riskier assets also has been reflected in the movement of cash between markets this week.

Money market funds, perceived to be among the least risky investments, attracted new money this week for the first time since January as investors moved back into cash, data from EPFR Global showed.

At the same time, the amount of money pulled from risky, high-yield bond funds hit a five-year high, while equity funds in emerging markets also suffered.

Investing Analysis

(Additional reporting by Natsuko Waki in London and Wanfeng Zhou in New York; Editing by Kenneth Barry)

Euro at 18-month low on debt woes