Nidhruvi blog

Europe debt fears drag the euro below $1.30

LONDON – Worries that Portugal or even Spain will have to seek outside help to deal with their debts sent the euro below $1.30 on Tuesday for the first time since mid-September.

In Europe, the FTSE 100 index of leading British shares was down 18.36 points, or 0.3 percent, at 5,532.59 while Germany's DAX fell 25.09 points, or 0.4 percent, at 6,672.88. The CAC-40 in France was 32.39 points, or 0.9 percent, lower at 3,604.6753.

Wall Street was poised for further declines at the open — Dow futures were down 106 points, or 1 percent, at 10,933 while the broader Standard & Poor's 500 futures fell 10.60 points, or 0.9 percent, at 1,175.90.

Europe's debt crisis again dominated the markets' focus, with the bond markets in particular considering the likelihood of further bailouts, following the weekend's euro67.5 billion ($89 billion) rescue package for Ireland.

Although Portugal is widely considered to be the most at risk of a bailout given the size of its debts relative to its economy, the major worry in the market is a possible bailout for Spain.

Most analysts think European authorities can handle bailing out the relative minnows of Greece, Ireland and Portugal but Spain — at around 12 percent of the eurozone economy — would be different matter altogether.

The Spanish yield on ten-year bonds rose another 0.16 percentage point Tuesday to 5.58 percent, while Portugal's was up 0.07 at 7.10 percent.

"The question of whether Portugal will get a bailout of its own seems to have been swept aside as investors ponder whether the authorities can afford to pre-emptively bailout Spain as they look well into the distance to review how much debt the local banking system has coming due over the next 12 months," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

Even Italy and Belgium appeared to be affected by the tensions. Italy's yield was up 0.10 percentage point to 4.74 percent and Belgium's rose 0.11 percentage 0.11 to 3.97 percent.

In light of these bond market jitters, the euro was again sold off heavily.

By mid-afternoon London time, the euro was trading a further 1 percent lower on the day at $1.2987, having fallen as low as $1.2968. That was the first time it had fallen below $1.30 since Sept. 16.

Trading across financial markets will likely be complicated by the month's end, when investors square off positions, but most analysts think December will continue to be dominated by Europe's debt crisis.

"Traders certainly won't be taking their eyes off the somewhat perilous state of the eurozone, and this is certainly going to cast a shadow over December," said Anthony Grech, head of research at IG Index.

The other theme in the markets is the quickening pace of the U.S. economic recovery following encouraging Black Friday retail sales figures. Black Friday is the day after Thanksgiving, the unofficial start to the Christmas shopping season, when retailers dream about profits — "being in the black."

The National Retail Federation, a trade group, estimated that 212 million shoppers visited stores and websites during the first weekend of the holiday season, up from 195 million last year.

Given the fairly buoyant anecdotal evidence, traders are keen to see if the monthly consumer confidence survey from the Conference Board later Tuesday surprises to the upside. The consensus in the markets is that the main index rose to 53 in November from October's 50.2.

Earlier in Asia, Chinese shares trimmed some losses after volatile trading that took the Shanghai benchmark down 3.4 percent at one stage on worries over fresh inflation-fighting measures. However, the Shanghai Composite Index closed down 1.6 percent to 2,820.18 while the Shenzhen Composite Index for China's smaller, second exchange fell 2.4 percent to 1,307.83.

Soaring prices in China, the world's No. 2 economy, are so far limited mostly to food, but analysts say price pressure could spread to other areas unless Beijing hikes interest rates and further tightens credit. Investors worry that might slow economic growth or reduce the amount of money flowing through the economy that is helping to finance stock trading.

Japan's Nikkei 225 stock average dropped 1.9 percent to close at 9,937.04 and Hong Kong's Hang Seng fell 0.7 percent to 23,007.99. Australia's S&P/ASX200 index shed 0.7 percent to 4,584.4.

The Nikkei's slump came after government figures that showed Japan's factories cut production for the fifth straight month in October, although the decrease wasn't as bad as expected. Unemployment worsened slightly and consumer spending fell in October, adding to Japan's struggle to keep its nascent economic recovery alive.

Benchmark oil for January delivery was down 78 cents to $84.95 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange.

___

Associated Press writer Pamela Sampson in Bangkok contributed to this report.