Euro drops, stocks fall on Europe debt concerns

By Al Yoon

NEW YORK (BestGrowthStock) – World stock markets and the euro slumped on Friday on concern the European sovereign debt crisis will spread within the continent.

Also clouding markets, China warned against military acts near its coastline before U.S.-South Korean naval exercises, which North Korea said risked pushing that region toward war. The North shelled a South Korean island on Tuesday.

Worry about the most deeply indebted European nations has intensified, fueled on Friday as newspaper reports shifted attention from Irish debt to Spain and Portugal. The crisis has lingered amid questions whether indebted countries can meet bond payments.

“Officials now seem to be pressing Portugal to take aid and that’s unsettling investors. Peripheral issues are unlikely to go away in the short term, and the euro will remain under pressure into the end of the year,” said Manuel Oliveri, currency strategist at UBS in Zurich.

The Financial Times Deutschland reported, without identifying its sources, that a majority of euro zone members and the European Central Bank were urging Portugal to apply for a financial bailout.

European officials denied “absolutely false” reports Portugal was under pressure to seek a bailout and Spain ruled out needing help to manage its finances despite fears of a spreading euro debt crisis.

The Irish Times, meanwhile, said officials at the International Monetary Fund and in the European Union were examining how senior bondholders could be compelled to pay some of the cost of rescuing Ireland’s banks.

Bond rating company Standard & Poor’s cut its ratings on the four domestically owned Irish banks, citing weakened credit-worthiness.

The mounting worry pushed world stocks lower. MSCI’s all country world index (.MIWD00000PUS: ) dropped more than 1 percent, extending the decline since November 5 to 5 percent.

Commodity-related shares led U.S. stocks (Read more about the stock market today. ) lower in a shortened post-holiday session as investors sold risky assets on worries that euro-zone debt problems may spread.

The Dow Jones industrial average (.DJI: ) dropped 95.28 points, or 0.85 percent, to 11,092. The Standard & Poor’s 500 (.SPX: ) declined 8.95 points, or 0.75 percent, to 1,189.40. The Nasdaq Composite (.IXIC: ) lost 8.56 points, or 0.34 percent, to 2,534.56.

U.S. stock markets closed at 1 p.m. (1800 GMT) following the U.S. Thanksgiving holiday on Thursday.

The FTSEurofirst 300 (.FTEU3: ) index of top European shares closed down 0.56 percent. Banks led losses.

Resource-related U.S. stocks (Read more about the stock market today. ) led declines, with the S&P materials sector (.GSPM: ) off 1.1 percent as key base metals prices fell, pressured by the advancing dollar and by a rise in margin requirements by the Shanghai Futures Exchange that prompted liquidation of speculative positions.

Freeport McMoRan Copper & Gold (FCX.N: ) dropped 2.5 percent to $98.16.

“The debt crisis in Europe is attracting a lot of dollar buyers, causing risk aversion,” said Peter Cardillo, chief market economist at Avalon Partners in New York.

Some confidence was restored after Portugal approved its 2011 austerity budget, vowing to spur growth and apply tough spending cuts in the hope of avoiding a bailout, causing 10-year Portuguese/ German bond yield spreads to ease off earlier wide levels.

Furthermore, the reaction to euro-zone debt worry has not yet matched that seen in May and June around the time of the Greek crisis due to the creation of a bailout mechanism involving the European Union and International Monetary Fund.

EURO WEAKENS

Pressure on the euro has intensified as the debt crisis threatens to ensnare Spain, Portugal and Italy.

The euro fell (Read more about the trembling euro. ) around 1 percent against the dollar to fresh two-month lows while the dollar got a lift from rising optimism about the U.S. economy and tensions in the Korean peninsula.

The euro fell (Read more about the trembling euro. ) 0.85 percent to $1.3247, with bids dropping below $1.3200.

The dollar rose as high as 84.18, the strongest level since late September. It was last at 84.10 yen, up 0.63 percent, rising further from a 15-year low of 80.21 yen hit at the beginning of this month.

Government debt markets also took their cue from speculation over the euro-zone debt outlook. U.S. Treasury debt tracked German Bunds higher, with both kinds of securities seen as safety plays by jittery investors.

Benchmark 10-year Treasury yields fell to 2.87 percent from 2.91 percent before the U.S. holiday on Thursday.

Ireland’s 10-year bonds were yielding 9.5 percent, Portuguese counterparts 7.1 percent and Spanish 10-year debt 5.2 percent. By contrast, German Bunds yielded 2.7 percent.

In commodities, U.S. light sweet crude oil was little changed at $83.83 per barrel.

(Additional reporting by Brian Gorman, Neal Armstrong and Jeremy Gaunt in London, and Rodrigo Campos in New York; Editing by Kenneth Barry)

Euro drops, stocks fall on Europe debt concerns