European shares, euro fall on debt worries

Thu Apr 5, 2012 8:42am EDT
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By Emelia Sithole-Matarise

LONDON (Reuters) - European shares and the euro fell on Thursday on fears the euro debt crisis is flaring up again, crimping investors' appetite for riskier assets ahead of a long holiday weekend for many.

Stock futures pointed to a 0.4 percent fall on opening for Wall Street, after leading indexes dropped 1 percent to 1.5 percent overnight.

Chinese shares bucked the softer global trend, posting their biggest single-day rise since early February led by non-banking financial sector firms after Premier Wen Jiabao said the monopoly formed by the country's big banks needed to be broken to get money flowing to cash-starved companies.

A poor Spanish bond auction on Wednesday added to worries that the impact of the European Central Bank's one trillion euro injecton of cheap three-year funds into the banking system may be coming to an abrupt halt.

Spanish 10-year government bond yields rose as high as 5.86 percent on Thursday, dragging Italian rates with them, as investors fled for the relative safety of German and U.S. debt.

"There's been a lot of negative news on Spain over a sustained period of time but market sentiment was being buoyed by strong auction results until yesterday," said Rabobank rate strategist Lyn Graham-Taylor.

"It's quite a dangerous time and if the market starts to panic then the sky's the limit (for borrowing costs), although you may see some policy action come into play."

Spanish stocks remained on the ropes, with the IBEX 35 index .IBEX touching a 7-month low. The MSCI world equity index .MIWD00000PUS was last down 0.2 percent.   Continued...

A trader checks screen data at the IG Index trading floor in London, December 9, 2011. REUTERS/Finbarr O'Reilly