World stocks, euro slide on fears of Spanish bailout

Mon Jul 23, 2012 12:47pm EDT
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By Herbert Lash

NEW YORK (Reuters) - World equity markets sold off and the euro plumbed to new two-year lows against the dollar on Monday after reports that more indebted regions in Spain need financial aid fueled fears that the country may need a bailout.

Investors fled to the perceived safety of safe-haven government debt and the U.S. dollar as concerns about economic growth, the plight of Spain and renewed market talk of a possible Greek exit from the euro zone drove investment decisions.

Crude oil tumbled 3 percent, and yields on U.S., British and German government debt hit record lows. But yields on government debt in Spain set euro-era record highs, easing later in the session.

Five- and 10-year German government bond yields hit new lows and U.S. Treasury-note yields hit their lowest since the early 1800s. Ten-year U.S. Treasuries yields fell as low as 1.3977 percent, and last traded up 7/32 in price to yield 1.4347 percent.

Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to a euro-era high of more than 7.5 percent, above the 7 percent level viewed as sustainable.

How Spain's 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euros in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.

The euro slid as low as $1.2067, its weakest since June 2010, but later pared losses to trade about flat at $1.2122. Against the yen, the euro was near a 12-year trough.

"The week is off to a challenging start as rising fears over Europe push risk aversion higher," said Camilla Sutton, chief currency strategist at Scotia bank in Toronto.   Continued...

Traders work on the floor of the New York Stock Exchange, July 2, 2012. REUTERS/Brendan McDermid