LONDON (Reuters) - Spain's 10-year bond yield climbed to a euro-era record of 7 percent on Wednesday as the storm surrounding Europe's debt crisis worsened, with fears over its impact on global growth sending world shares lower.
U.S. stock index futures pointed to a more mixed start on Wall Street after weak retail sales data and the euro zone's problems had sent shares lower on Wednesday. .N
"The underlying problem of deteriorating confidence in sovereign debt in Europe is continuing to intensify," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
The rise in Spanish debt yields came as Germany, Europe's most powerful economy, rebuffed calls from other European leaders to help underwrite the region's debt or guarantee deposits in euro zone banks.
Chancellor Angela Merkel, addressing parliament in Berlin, labeled ideas such as issuing joint euro bonds or creating a Europe-wide bank deposit guarantee scheme as "miracle solutions", and said they were "counterproductive" and would violate the German constitution.
The apparent tensions at heart of the euro area over how to deal with the crisis did little to shake the single currency out of its trading range however, with many investors sidelined by the approach of Sunday's cliffhanger election in Greece, which could see it leave the 17-member currency bloc.
The euro has spent the week within a range between a near two-year low set on June 1 of $1.2288 and Monday's three-week high of $1.2672 and was up 0.1 percent on Thursday at $1.2575.
"The euro has been relatively stable as we head into the Greek election, and that will dictate market direction next week. Investors do not want to take on extra risk at this point," Hardman said.
The worries about Spain sent its 10-year government bond yields up as much as 25 basis points to a record high of 7.02 percent, just over the 7 percent mark that drove Greece, Ireland and Portugal to seek international bailouts.
The rise followed a three-notch downgrade in Spain's credit rating by Moody's Investors Service late on Wednesday, which took it to within one notch of "junk" status.
Spanish yields have risen sharply this week after euro zone ministers agreed at the weekend on a rescue plan of up to 100 billion euros for the country's banks that has failed to convince investors it solves Spain's financial problems.
The yields on Spanish debt later eased back to be around 19 basis points higher on the day at 6.97 percent.
Fears that Spain's problems may be repeated on an even larger scale in Italy, Europe's third-largest economy, saw its three-year borrowing costs spike to 5.3 percent at auction on Thursday, the highest since December.
Italian government 10-year bond yields also rose three basis points to 6.25 percent.
The gains came despite Germany's strong expression of support for Prime Minister Mario Monti's reforms when he visited Berlin on Wednesday.
"We are fast approaching the point where both Spain and Italy may have to be removed from the market," said Gary Jenkins, director of Swordfish Research.
Europe's top shares extended their recent losses, with concerns about Spain and Italy adding to fears the worsening euro zone debt crisis was hurting global growth, crimping appetite for riskier assets like equities.
"Till there is more calm around Greece and Spain, one should just stay a bit on the sidelines and watch what will happen," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank, in Germany.
The FTSEurofirst 300 .FTEU3 was down 0.8 percent, at 979.31, while the EUROSTOXX50E implied volatility index .V2TX, a crude gauge of investors' fears, was up 3 percent, having more than doubled since mid-March when worries about Spain resurfaced.
Data from the United States showing the recovery in the world's largest economy was at risk from the problems in Europe also undermined sentiment in global share markets sending the MSCI world equity index .MIWD00000PUS down 0.3 percent 300.45.
Gold benefited slightly from the rising concerns about the impact of the euro zone crisis, regaining some of its safe-haven allure. Spot gold traded up 0.1 percent to about $1,620 an ounce, having already gained over 1 percent this week.
The turmoil in the euro zone, however, did not prompt the Swiss National Bank to change its cap on the franc of 1.20 per euro at its latest policy meeting.
The SNB did say it was ready to buy an unlimited quantity of euros to defend the current policy, despite having to buy large amounts of euros in the past few weeks, and was considering other measures, widely seen as a reference to capital controls.
Oil prices meanwhile traded under $97 a barrel on Thursday with investors and traders reluctant to add to positions ahead of a meeting later in the day of oil producer group OPEC.
Traders are looking for any change in OPEC's output policy given that some view the market as over-supplied, and after prices have tumbled sharply in the last month.
Brent crude was down 19 cents to $96.94 a barrel while U.S. crude was up 16 cents at $82.79, after settling at its lowest level since October 6 on Wednesday.
Additional reporting by Kirsten Donovan and David Brett. Editing by Will Waterman