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Global stocks fall as euro crisis saps confidence

Sep 13, 2011, 10:02 p.m.
A trader is pictured at his desk in front of the DAX board at the Frankfurt stock exchange September 13, 2011. REUTERS/Remote/Pawel Kopczysnki

By Alex Richardson

SINGAPORE (Reuters) - Asian stocks, U.S. index futures and the euro fell on Wednesday as investors remained unconvinced that euro zone leaders have a coherent plan to tackle the bloc's sovereign debt problems, which many fear could trigger a new banking crisis.

Global markets have been roiled since the end of July by the twin fears of renewed recession in the United States and Europe's protracted debt woes, which have seen Greece, Ireland and Portugal forced to take bailouts and piled bond market pressure on Italy and Spain.

"Some of the European banks may have to recapitalize their balance sheets with government assistance. It's creating a lot of nervousness and uncertainty," said Simon Bonouvrie, portfolio manager at Platypus Asset Management in Sydney.

Oil eased after the International Energy Agency revised down its forecast for growth in consumption due to the struggling global economy.

Underlining the brittle state of confidence in global markets, the dollar rose and the yield on 10-year Japanese government bonds (JGBs) fell below 1 percent as demand for assets perceived as safe havens remained high.

Japan's Nikkei share average <.N225> fell 1 percent, while MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> dropped 2.3 percent. <.T>

The MSCI index is now nearly 22 percent below its 2011 high reached in April. A decline of 20 percent or more is the rule-of-thumb definition of a bear market.

U.S. index futures traded in Asia fell 1.1 percent.

Wall Street stocks had risen on Tuesday, with the S&P 500 <.SPX> up 0.9 percent, amid hopes that European leaders would take action soon to ease the two-year-old debt crisis. <.N>

Markets had been spooked in recent days by renewed talk among euro zone policymakers of an imminent default by Greece, prompted by the country's failure to meet the fiscal goals set out in its European Union/IMF bailout.

Greek, German and French leaders were due to hold a conference call at 12 p.m. EDT on Wednesday.

"The conference call will at least calm nerves ... and may provide 24 hours of reprieve. That's about it, though," said Sean Callow, a senior currency strategist at Westpac in Sydney.

The euro slipped to around $1.3625 against the dollar, having jumped more than a cent in the previous session on news of the conference call. The single currency tumbled to a seven-month trough of $1.3499 earlier this week.

Confidence in the euro zone was further dented on Tuesday when Italy, where lawmakers vote later on an austerity package at 1800 GMT, was forced to pay the highest interest rates since joining the euro in 1999 to sell 5-year bonds.

Italy is a particular concern because, while Europe's bailout fund can cope with rescuing smaller, peripheral nations, it lacks the financial firepower to save the euro zone's third largest economy.

Europe's woes drove investors to seek shelter in the dollar, which rose 0.5 percent against a basket of major currencies <.DXY>.

CREDIT FREEZE

The exposure of European banks to sovereign debt has raised fears of a freezing of credit markets in a re-run of the panic that gripped the financial sector after the collapse of Lehman Brothers in late 2008.

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