Shares, euro dragged lower by grim economic data

Wed Jul 4, 2012 12:20pm EDT
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By Richard Hubbard

LONDON (Reuters) - World shares, the euro and oil prices fell on Wednesday as evidence grew of the headwinds facing the global economy, though hopes of policy easing by major central banks limited the falls.

Strong demand for safe-haven German debt at a bond auction also signaled that investors remain worried about the implementation of recently agreed measures to help ease the euro zone's debt crisis, with Spanish and Italian bond yields higher.

However, activity was very subdued with U.S. markets closed for the Independence Day holiday and before policy decisions from the European Central Bank and Bank of England on Thursday.

In the quiet market Germany still found it easy to sell 3.3 billion euros ($4.2 billion) of 5-year government bonds, receiving bids for 2.7 times the amount on offer at an average yield of just 0.52 percent.

"What we are seeing is that ... this demand for safety remains intact," said Michael Leister, rate strategist at DZ Bank.

After the auction 10-year Spanish bond yields rose 14 basis points to 6.4 percent, and the Italian equivalent rose 12.5 basis points to 5.77 percent.

The euro steadied against the dollar to trade around $1.2525, under pressure from widespread expectations that the ECB is about to cut interest rates.

The single currency fell to an 11-1/2 year low against the higher-yielding Swedish crown when Sweden's central bank kept its main interest rates unchanged.   Continued...

A man with an umbrella struggles against heavy rain and wind caused by Typhoon Guchol in front of a board showing the Nikkei average outside a brokerage in Tokyo June 19, 2012. REUTERS/Issei Kato