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Global stocks slide again amid euro zone, banking worries

Sep 5, 2011, 11:39 p.m.
A man scratches his head in front of an electronic board displaying falls in major market indices around the world, outside a brokerage in Tokyo in this August 9, 2011 file photo. REUTERS/Issei Kato

By Alex Richardson

SINGAPORE (Reuters) - Asian shares and the euro fell on Tuesday, gold jumped to a fresh record while European stocks appear set to slide further on fears that Europe's sovereign debt troubles are worsening and could trigger a second full-blown banking crisis.

S&P 500 futures fell 2.7 percent, pointing to sharp losses on Wall Street as it catches up to European and Asian markets after a holiday on Monday. U.S. Treasury 10-year yields fell to the lowest in at least 60 years.

Euro STOXX 50 futures fell 1.3 percent and German and French index futures also dropped, while spreadbetters called the FTSE 100 1 percent lower. European stocks tumbled 4 percent on Monday, with financial shares falling to their lowest in more than two years.

"It's the European disease that is infecting markets all around the world at the moment," said Michael Heffernan, senior client adviser and strategist at Austock Group in Australia.

Adding to the gloom are worries that the United States may be sliding back into recession, a concern heightened by a slew of downbeat data, most recently employment figures that showed the world's top economy failed to create any jobs last month.

Singapore's finance minister told a conference in the city-state on Tuesday that a global recession was now "more likely than not" as the U.S. and European economies were at "stall" speed.

Gold, traditionally seen as a safe asset in times of uncertainty, rose above $1,919 an ounce to a new record, while the yield on 10-year Japanese government bonds(JGBs), another safe haven, fell below 1 percent.

Tokyo's Nikkei fell 2.2 percent to a six-month low, while MSCI's broadest measure of Asia Pacific shares outside Japan was off 1.7 percent, putting the index nearly 19 percent down from its April high.

The hardest hit sectors in the MSCI index were industrials, materials and financials.

EURO CRISIS

The latest focus of Europe's slow-motion debt crisis is Italy, whose bonds were sold off on Monday on worries that Rome is not doing enough to bring its debt under control. Italian 10-year yields rose near 5.6 percent, their highest since early August.

While European leaders have been able to put together bailout packages for Greece, Ireland and Portugal, investors fear the consequences of a similar crisis engulfing a bigger economy such as Italy or Spain.

The chief executive of Deutsche Bank said on Monday that the euro zone sovereign debt crisis would stunt bank profits for years and could cause the collapse of weaker lenders.

The euro fell to a seven-week low below $1.4055. Against the yen, the single currency fell as far as 107.95, its lowest since March.

The European Central Bank, the only major Western central bank to raise interest rates since the 2008/09 financial crisis, meets on Thursday but is expected to leave borrowing costs unchanged at 1.5 percent, which could put the single currency under further pressure.

"Without the support of a more hawkish central bank, the euro will look very vulnerable," Societe Generale strategists Kit Juckes and Sebastien Galy wrote in a note.

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