NEW YORK: World stocks fell on Monday, Jan 10 on fears Portugal may be the next euro-zone member forced to seek a bailout, and the euro was seen remaining under pressure even as it managed to recover after hitting a four-month low against the dollar.
Prices of U.S. Treasury debt and gold rose as investors sought safety on a resurgence in worries about European debt ahead of key bond auctions by Portugal, Italy and Spain this week.
The euro's rebound was partially fueled by gains against the Swiss franc, on speculation the Swiss government may act to rein in currency gains. Talk of further bond purchases by the European Central Bank also took some pressure off the market.
Stocks fell in the United States, Europe and most emerging markets as the fears about European debt levels overshadowed news of multibillion-dollar mergers and acquisitions. Asian stocks were also poised to open lower, with front-month Nikkei 225 futures traded in Chicago falling 25 points to 10,480.
"We see a further escalation in the European debt crisis, and a substantially weaker euro," said Stephen Jen, managing director of macroeconomics and currencies at BlueGold Capital Management LLP in London.
"There is no silver bullet because the underlying problems are 'knotted.'"
The euro fell as low as $1.2860 on trading platform EBS, a level not seen since mid-September, but recovered later to trade at $1.2949, up 0.26 percent on the day. It remains down more than 3 percent against the dollar so far this year.
European debt concerns rose again during the weekend after Reuters quoted a senior euro zone official as saying Germany and France were increasing pressure on Portugal to seek financial help from the European Union and International Monetary Fund.
The report sent yields on Portuguese 10-year debt soaring above 7 percent to their highest levels since the euro's creation in 1999. Portuguese yields recovered some ground later on Monday on talk of ECB bond buying, but remained above 7 percent, which is seen as an unsustainable cost of borrowing.
Portugal denied it was under pressure from Berlin and Paris to seek a bailout.
"It highlights the problems of whether the bailout fund will be sufficient to meet everybody's expectations," said Mark Bon, fund manager at Canada Life in London, said of the reports on Portugal.
WORLD STOCKS WEAKER
On equity markets, the debt worries offset expectations of strong corporate earnings at the beginning of the U.S. quarterly earnings season. Wall Street, however, managed to shake off most of the worries about Europe as the trading day progressed.
Merger and acquisition deals provided a strong positive note and helped cap losses. Duke Energy Corp agreed to buy Progress Energy Inc for $13.7 billion in stock, while DuPont planned to buy Danisco, a Danish food ingredient firm, for $5.8 billion.
The Dow Jones industrial average lost 37.31 points, or 0.32 percent, to 11,637.45, while The Standard & Poor's 500 Index edged down 1.75 points, or 0.14 percent, to 1,269.75. The Nasdaq Composite Index gained 4.63 points, or 0.17 percent, to 2,707.80.
World stocks declined 0.52 percent according to the benchmark MSCI All-Country World Index.
In Europe, the FTSEurofirst 300 index of top shares closed down 0.97 percent, after rising 2 percent last week.
The heavyweight banking sector, which has exposure to sovereign debt in peripheral euro zone countries, was a major loser. BNP Paribas, Banco Santander, Intesa SanPaolo, Societe Generale and UniCredit fell between 2.7 and 5.7 percent. Greek banks fell 6.6 percent.
Shares in Portugal's largest listed bank Millennium bcp fell 3.15 percent while other Portuguese banks also fell.
Euro zone credit concerns benefited government bonds, sending U.S. Treasury debt prices higher.
The benchmark 10-year U.S. Treasury note rose 9/32 in price, sending its yield down to 3.289 percent. The 30-year bond gained 12/32 in price, with the yield at 4.4621 percent.
Gold prices rose 0.44 percent to $1,374.60 on a renewed safe-haven bid.
U.S. crude oil prices settled $1.22 higher, or 1.39 percent, to $89.25 a barrel, after a leak shut an Alaskan pipeline that carries 12 percent of U.S. crude output. - Reuters
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