Markets see renewed fears about European debt

AP News
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Posted: Mar 23, 2011 11:44 AM
Markets see renewed fears about European debt

An outbreak of jitters over Europe's debt crisis and discouraging U .S. housing data weighed on stocks Wednesday as investors grew increasingly concerned over both Portugal and Ireland.

A day before a summit of EU leaders in Brussels, a major worry is that Portugal's government may fall later Wednesday following an expected defeat on planned austerity measures in a Parliament vote.

"A failure to support the proposed austerity measures (in Portugal) may trigger the fall of the government, increasing the likelihood that an EU bailout will be needed," said Vassili Serebriakov, an analyst at Wells Fargo Bank.

While Portugal tries to stave off a bailout, the new Irish government is showing no sign of raising its super-low corporate tax rate, meaning the European Union is unlikely to give the Irish easier terms for their bailout loan.

Against that backdrop, investors are refocusing on Europe's debt crisis after a couple of weeks when most attention has been centered on North Africa and Japan.

Movements in bond markets indicated increasing pessimism among investors. The yield on Portugal's ten-year bonds was up 0.12 of a percentage point to 7.61 percent, a whisker short of euro-era highs, while Ireland's yield was up 0.23 percentage point to 10.07 percent, its highest level since the single euro currency was established in 1999.

The worries started to affect the euro, which was trading 0.3 percent lower on the day at $1.4135.

And in Europe's stock markets, Germany's DAX was down 0.5 percent at 6,749 while the CAC-40 in France fall 0.3 percent to 3,881. The FTSE 100 index of leading British shares was 0.2 percent lower at 5,750.

In the U.S., stocks were further undermined by another bad set of housing figures _ the Dow Jones industrial average was down 0.3 percent to 11,982 while the broader Standard & Poor's 500 index fell 0.6 percent to 1,286.

This time, the Commerce Department reported that new-home sales fell 16.9 percent last month to a seasonally adjusted annual rate of 250,000 homes. That was the third straight monthly decline and far below the 700,000-a-year pace that economists view as healthy.

"This report and the existing home sales data released yesterday confirm that the housing market is still in free fall," said Steven Ricchiuto, chief economist at Mizuho Securities.

U.S. economic news has barely driven markets over recent weeks, as investors have been preoccupied by developments in the Arab world, most recently in Libya, and the aftermath of the devastating March 11 earthquake and tsunami in Japan.

Japan's struggle to contain radiation from the Fukushima Dai-ichi nuclear power plant and fears that the economic cost of the natural disasters may run over $300 billion weighed on Tokyo's Nikkei 225 stock average earlier, which closed down 1.7 percent to 9,449.47.

There was also a lot of interest in the resumption of trading on Egypt's stock exchange following a near two-month shutdown because of the mass protests that toppled former President Hosni Mubarak. Unsurprisingly, it plunged almost 9 percent, with foreign investors leading the sell-off.

Earlier in Asia, South Korea's Kospi eased 0.1 percent to 2,012.18, while Hong Kong's Hang Seng shed 0.1 percent to 22,825.40.

Mainland Chinese stocks rose with the Shanghai Composite Index gaining 1 percent to 2,948.48, and the smaller Shenzhen Composite Index up 1.2 percent to 1,299.99. Benchmarks in Taiwan, Singapore and Thailand also rose.

Oil prices on the New York Mercantile Exchange hovered around $105 a barrel as violent uprisings in Libya and elsewhere in the Middle East kept traders nervous about possible crude supply disruptions. OPEC-member Libya, which produces enough oil to meet nearly 2 percent of world demand, has almost totally stopped shipping it.

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Pamela Sampson in Bangkok contributed to this report.