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EU zone fears spark rush for dollar

LOndon, May 18, 2012

German government bond yields hit record lows on Friday, the US dollar rose and shares fell as the escalating bank crisis in Spain, a ratings downgrade for Greece and sluggish US data spurred investor demand for safe-haven assets.

Across the board, riskier assets from commodities such as gold and oil and currencies - like the euro and the Australian dollar - were all heading for big weekly losses.

The FTSEurofirst 300 was down 0.9 per cent at 972.64, falling for a fifth straight day and taking its weekly loss so far to 4.9 percent.

Benchmark 10-year German bond yields hit a record low of 1.396 percent and two-year yields also fell to their lowest-ever level at 0.028 percent.

'European markets are still in a very fatalistic mood because of Greece and possible contagion,' said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.

'My view is that it is very likely that the ECB will step in before the situation spirals out of control, which will support the markets.'

The safe-haven dollar rose against a basket of major currencies to hit a four-month high of 81.758, while the euro marked a four-month low around $1.2655.

The latest selloff of riskier assets comes after Moody's cut the long-term and deposit ratings of 16 Spanish banks, Fitch downgraded Greece deeper into junk territory and the United States reported an unexpected contraction in regional factory activity.

MSCI's world equity index was down 0.75 per cent to 299.38 and has given up all its gains for the year following heavy losses this week in U.S. equities and emerging markets, as worries rise over the impact of the euro zone crisis on global growth.-Reuters




Tags: Dollar | fear | EU zone |

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