Euro down on Greek jitters, banks dent U.S. stocks

By Herbert Lash

NEW YORK (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) and Greek debt came under intense pressure on Monday on renewed jitters over Greece’s bailout, while U.S. stocks (Read more about the stock market today. ) mainly edged lower on fears that the financial reform making its way through Congress will curb bank profits.

U.S. government debt prices were little changed with investors unwilling to commit to a strong market position ahead of the Federal Reserve’s two-day policy meeting that begins on Tuesday.

The euro fell (Read more about the trembling euro. ) against the U.S. dollar for the seventh of eight trading sessions and fell to a three-month low against sterling as investors fretted about the potential conditions attached to loans from the European Union and International Monetary Fund to Greece. Germany said aid could come in days if Greece agreed to painful new austerity measures.

Greece said on Sunday that 45 billion euros ($60.5 billion) in planned EU-IMF assistance would arrive in time to refinance an 8.5 billion euro bond on May 19.

“Aid for Greece still doesn’t seem like a completed deal, so all the uncertainty about the timing and details of a Greek plan limits demand for euro,” said Michael Malpede, analyst at Easy Forex in Chicago.

Greek borrowing costs hit a 12-year peak as fears mounted that the aid would come too late to avert the euro zone’s first sovereign debt default.

“Until the cash is on the table investors will continue to demand very high risk premiums on Greek bonds,” said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.

The euro fell (Read more about the trembling euro. ) 0.2 percent to $1.3362 after earlier hitting a session low of $1.3291.

The weaker euro pressured gold prices, but news of limited gold sales by the International Monetary fund provided underlying support. Traders said the news on the IMF’s gold sales, reported by the World Gold Council, confirmed a market view that renewed interest among central banks in the wake of currency volatility would help limit official-sector gold sales.

Spot gold hit a peak of $1,159.73 an ounce before sliding $4.55 to $1,152.30. U.S. gold futures for June delivery settled up 30 cents at $1,154 an ounce in New York.

Global stocks rose, boosted by gains of 1 percent or more in Europe and Asia, but most U.S. stock indexes edged lower as fears over the impact of financial reform largely overshadowed strong quarterly profits from companies including Caterpillar.

Global stocks as measured by MSCI’s all-country world index (.MIWD00000PUS: ) was up 0.4 percent.

The Dow eked out a gain as Caterpillar Inc (CAT.N: ), the heavy machinery maker, raised its full-year profit forecast and cited improving economic conditions. Its shares rose 4.2 percent.

The Dow Jones industrial average (.DJI: ) was up 0.75 points, or 0.01 percent, at 11,205.03. The Standard & Poor’s 500 Index (.SPX: ) was down 5.23 points, or 0.43 percent, at 1,212.05. The Nasdaq Composite Index (.IXIC: ) was down 7.20 points, or 0.28 percent, at 2,522.95.

A proposal to overhaul financial regulation that could restrict lucrative derivatives trading was expected to face a crucial Senate test vote on Monday and weighed on financial shares.

The KBW bank index (.BKX: ) dropped 3.1 percent.

“Most of the big banks’ profits come from trading and if you restrict their trading profits, that’s going to restrict their overall profits,” said Keith Springer, president of Capital Financial Advisory Services in Sacramento.

Springer said that regional banks also will be hurt even more “because they can’t make up the cost of the fees the financial reform is going to charge them.”

Top European shares rose, with the FTSEurofirst 300 (.FTEU3: ) index closing up 1 percent at 1,103.00 points.

Optimism about economic growth and commodity demand helped European miners, which also benefited from a rise in key base metals prices.

Copper rose to a 10-day high on optimism over growth and demand for the metal gained following strong U.S. housing market data last week.

Copper for July delivery rose 1.75 cents to settle at $3.5480 a pound in New York.

U.S. Treasury debt prices began the day higher, spurred by safe-haven bids on Greek debt concerns, but caution ahead of the Fed’s policy meeting on Tuesday and Wednesday muted gains.

The benchmark 10-year U.S. Treasury note was up 2/32 in price to yield 3.81 percent, but the 30-year U.S. Treasury bond was down 1/32 in price to yield 4.67 percent.

The yield spread against German Bunds scaled 12-year highs as the cost of insuring against a default by Greece hit a record high. Sovereign credit risk fears also boosted the cost of insuring Portuguese debt to new highs.

The Greek/German 10-year bond yield spread climbed to 680 basis points, passing the previous record set last week of 611 basis points, and matching levels last seen in February 1998.

U.S. crude prices fell below $85 a barrel as the dollar rose on Greece and as the energy market girded for further growth to U.S. inventories.

U.S. crude for June delivery settled at $84.20 a barrel, down 92 cents, while the front-month contract for London ICE Brent crude settled down 42 cents at $86.83.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index (.DXY: ) up 0.06 percent at 81.401.

Against the yen, the dollar was up 0.12 percent at 94.02. The dollar rose against the yen on investor bets that the Fed would raise interest rates before year-end, well ahead of any move by the Bank of Japan. The Fed is expected to sound an upbeat note about the economy when it meets Tuesday and Wednesday.

Overnight in Asia, the MSCI index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS: ) rose 1.3 percent, and Japan’s Nikkei average climbed more than 2 percent.

Stock Market Today

(Reporting by Ryan Vlastelica, Steven C. Johnson and Richard Leong in New York and Joe Brock, Kirsten Donovan and Pratima Desai in London; Writing by Herbert Lash; Editing by Leslie Adler)

Euro down on Greek jitters, banks dent U.S. stocks (Read more about the stock market today. )