Euro hit by Spain woes, Global stocks rise

Tue May 29, 2012 5:00pm EDT
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By Herbert Lash and Steven C. Johnson

NEW YORK (Reuters) - The euro neared a two-year low on Tuesday as investors fretted about Spain's troubled banking system, but global stocks jumped on speculation Greece would stay in the euro zone and news that China would take new measures to stem an economic slowdown.

The euro fell further below $1.25 after Egan-Jones Ratings cut Spain's credit score for the third time in less than a month, saying the need to support the country's banks was putting new strains on Spanish public finances.

The euro fell to lows versus the U.S. dollar last seen in since July 2010, as Spain's 10-year borrowing costs rose to 6.54 percent. The euro traded down 0.3 percent to $1.2503.

Spanish stocks also fell and Spain's borrowing costs held near six-month highs after a source said the government would issue new debt to recapitalize troubled lender Bankia.

European Central Bank officials declined to comment on speculation of further action to bolster banks in the euro zone.

"The rumor mill has been busy, with talk of an ECB press conference about bank recapitalization, supporting the euro and giving euro zone stocks upside momentum," said Saxo Bank Chief Economist Steen Jakobsen, in Copenhagen. "We do not believe in it, for the record."

MSCI's all-country world equity index .MIWD00000PUS rose 0.9 percent to 303.71, while the FTSEurofirst 300 .FTEU3 of top regional shares closed up 0.7 percent at 990.99.

Stocks on Wall Street rose on renewed hopes Greece will stay in the euro zone after Greek election polls pointed to support for pro-bailout parties in elections next month.   Continued...

A man walks past an information bilboard showing the evolution of the FTSE 100 index at the Swiss exchange in Zurich, August 9, 2011. REUTERS/Christian Hartmann