Euro debt contagion keeps markets uneasy

By Tamawa Desai

LONDON (BestGrowthStock) – The euro hit a 10-week low against the dollar and world stocks struggled on Tuesday as euro zone debt problems weighed on investor sentiment even after Ireland’s bailout.

U.S. stock futures pointed to a lackluster open on Wall Street, after it closed down on Monday but well off its trough as the market braced for jobs data later this week that would help gauge the strength of the world’s biggest economy.

An 85-billion euro package for Ireland and plans for a permanent system to resolve debt crises announced on Sunday did little to stem fiscal concerns, as speculators targeted other debt-laden countries.

The premium investors demand to hold Spanish and Italian sovereign bonds over German bonds hit their highest since the euro’s launch while some of the region’s “core” debt issuers, including France, were pressured.

“It’s very worrying because Spain is almost too big to be bailed out … whereas Italy is too big to be bailed out,” said Everett Brown, European bond strategist at IDEAglobal.

Italian 10-year yields rose to close to 5 percent, while Spanish 10-year bonds yielded 5.7 percent, pushing the spread over Bunds above 310 basis points.

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The euro fell (Read more about the trembling euro. ) to $1.2979 on trading platform EBS, its lowest since mid-September, before bouncing back to around $1.3022 by 1142 GMT. The single currency also hit 2-1/2 month lows against the yen, Swiss franc and sterling.

“At the moment there is no confidence that any of these (peripheral) countries can effectively fund,” said Adrian Schmidt, currency strategist at Lloyds.

“Until we get some sort of market appetite for peripheral debt these worries will continue to weigh on the euro,” he said, adding he believed it could fall as low as $1.25.

European shares drifted higher from the previous day’s eight-week closing lows, though euro zone debt issues kept investors cautious. The FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,072.89 points.

“We will stay in a choppy mode for the next few weeks as the debt problems in the euro zone stays on investors’ minds. The market will also be looking ahead to economic numbers such as the U.S. jobs figures this week,” said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

MSCI’s all country world index was down 0.1 percent on the day.

U.S. Treasury prices rose, adding to the previous day’s gains, as investors turned to government debt as a safe haven from the recent flare-up in volatility.

Spot gold was a touch higher at $1,373 an ounce, while gold priced in euros hit a record high. U.S. crude oil futures slipped to around $85 a barrel, retracing sharp gains in the previous session.

(Additional reporting by Kirsten Donovan, Jessica Mortimer and Harpreet Bhal; editing by Mike Peacock)

Euro debt contagion keeps markets uneasy