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Debt worries hit euro, stocks

Singapore, May 23, 2011

Renewed worries in the euro-zone over the weekend pulled the euro down to a record low against the Swiss franc, weakened risky assets such as Asian stocks and boosted safe haven investments like US government debt and gold on Monday.

The euro came under renewed selling pressure after Fitch Ratings cut Greece's debt ratings by three notches on Friday, pushing the country deeper into junk, while rival Standard & Poor's cut its outlook for Italy to "negative" from "stable" on Saturday.

The stream of bad news coming out of the euro zone and the resultant weakening in US stocks on Friday also took its toll on Asian stocks as waning investor appetite for risk, pushed the region's bourses into the red and sparking a rush into safe-haven assets like government debt.   

"Sustained foreign selling following US stocks' fall and caution about the global economic backdrop is weighing, and this is likely to continue until June," said Bae Sung-young, a market analyst at Hyundai Securities, adding the market still had relatively firm support at its 120-day moving average of 2,060 points.    

Japan's Nikkei and Australia's benchmark index  fell more than 1 percent. Seoul shares were down nearly two percent, led by declines in shares of Hyundai Motor  and Kia Motors as a strike at one of their suppliers disrupted production.     
Outside Japan, MSCI's index of Asia Pacific shares  was down 1.7 percent after posting four consecutive weeks of declines.    

The rush towards safe-haven assets helped 10-year US
Treasury notes build on Friday's gains. It was yielding 3.12 percent, down from 3.15 percent on late Friday.

The single currency breached support near 1.24 against the Swiss franc and hit a record low of 1.2345 francs on trading platform EBS but later trimmed its losses to stand at 1.2360. 

Against the dollar, the euro slipped to $1.4095, having triggered some stop-loss selling near $1.4100. Some traders said the potential for further long liquidation suggested the euro could dip below that level in the near term.         
In the commodity markets, US crude futures retreated further below $100 per barrel on expectations for lower oil demand from Europe as a volcanic eruption in Iceland threatens air travel.

Gold, which also benefited from the decreasing comfort with risky investments, extended gains to a two-week high. -Reuters       




Tags: Gold | Europe | Asian stocks | debt |

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