World stocks hit by weak Italian debt auction

Wed Dec 14, 2011 8:35am EST
 
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By Richard Hubbard

LONDON (Reuters) - The euro sank and stock markets fell on Wednesday, worried by record high borrowing costs for Italy and the Federal Reserve's decision to do nothing new to prop up growth despite warning Europe's debt crisis could hurt the U.S. economy.

Major U.S. stock markets were on track to open lower with futures markets signaling falls of between 0.2 and 0.5 percent.

The euro broke below $1.30 for the first time since January after Rome's auction of five-year debt, with foreign exchange markets still speculating that more rating downgrades were in prospect for euro zone governments.

"Uncertainties on the future of the debt crisis remain high and the market seems to be mainly driven by flight-to-quality this morning," said Annalisa Piazza, market economist at Newedge Strategy.

Italy paid a euro era record 6.47 percent on its new five-year bonds, compared with the previous record of 6.3 percent set in November.

Germany also sold debt, raising 4.2 billion euros in an auction of two-year bonds which sold at a euro era record low yield of 0.29 percent, compared with 0.39 percent at the last such auction.

The German sale, which drew bids worth 1.4 times the amount on offer, illustrated how desperate investors are to find a safe haven for their money.

European shares slipped on concerns over the lack of Fed policy action and the Italian bond auction result with the FTSEurofirst 300 .FTEU3 index down about 0.7 percent for a loss of about 1.7 percent over the month.   Continued...