Euro slides to 12-year lows, U.S. stocks close lower

Wed Mar 11, 2015 5:02pm EDT
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By Herbert Lash

NEW YORK (Reuters) - The euro slumped to a 12-year low against the dollar on Wednesday, driving European stocks higher as shares of big exporters gained, while U.S. stocks slipped on concern over when the Federal Reserve would begin to raise U.S. interest rates.

Divergent policies, with the European Central Bank becoming more accommodative by buying bonds and the Fed poised to raise rates possibly as early as June, pushed yields on euro zone bonds lower and those on U.S. government debt initially higher.

The euro extended its decline to below $1.06 for the first time since early 2003 as yields in the euro zone collapsed more than 1 percent. Yields on German 30-year government bonds are now lower than those on U.S. two-year paper.

Expectations the Fed will end its near-zero rate policy given a tightening labor market propelled an index which measures the dollar against six major currencies .DXY to an almost 12-year high.

The drop in euro zone yields helped lift Germany's DAX stock index .GDAXI, which includes big exporters Volkswagen (VOWG_p.DE: Quote) and BMW (BMWG.DE: Quote), to a record high. The index has surged 20.6 percent so far this year.

U.S. stocks closed lower after trying to recover in a see-saw session a day after the S&P 500's biggest one-day drop in two months, having fallen a similar amount Friday.

"It's all about rates. I think many are holding onto the view that if the Fed raises rates, stocks stop in their tracks and reverse and the bull market ends," said Bruce Zaro, chief technical strategist at Bolton Global Asset Management in Boston.

U.S. stocks marked the sixth year of the bull market this week after the nadir of the financial crisis on March 9, 2009.   Continued...

The shadow of the logo of Euro is seen on a U.S. one dollar note in this picture illustration taken in Madrid March 10, 2015. REUTERS/Sergio Perez