Earnings, Spanish downgrades weaken shares, euro

Tue Oct 23, 2012 5:58am EDT
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By Marc Jones

LONDON (Reuters) - Lackluster corporate earnings and a credit rating downgrade of five Spanish regional governments weakened world shares and the euro on Tuesday, while expectations of stimulus in Japan hurt the yen.

The euro zone's debt crisis and the damage it is doing to worldwide economic health remains a top concern for investors still looking for firm proof that recent support measures from leading central banks are being felt.

Data on Tuesday showed business morale in France's manufacturing sector slumped to its lowest level in over two years, while a downgrade of five Spanish regions by Moody's added to nerves over the country now at the heart of the crisis.

The euro was down 0.22 percent at $1.3033 by 0945 GMT. Safe-haven German government bond prices moved higher and nudged up Spanish and Italian 10-year bond yields.

Financial markets are still waiting for a bailout request from Spain to trigger the European Central Bank's new bond-buying program, which many believe would draw a line under any threat of default from the euro zone's fourth-largest economy.

"Recent comments indicated that Prime Minister Rajoy has no real urgency to request a bailout and that has taken some steam off the rally and the downgrade of the regions is adding to the negative newsflow," Commerzbank strategist Michael Leister said.

"The market is realising that the momentum we had with a lot of events last week will most likely not be followed up by a quick aid request by Spain and that's prompting some profit- taking. We don't expect a sharp correction but a bit of a pullback," he added.

European shares .FTEU3, which ended Monday down 0.4 percent and are down 1.9 percent since the start of the week, buckled after an early push to stand 0.6 percent lower by mid-morning. Following falls in Asia, the MSCI index of world shares .MIWD00000PUS was down 0.3 percent.   Continued...

A city trader monitors stock prices in London.