US Consumer Confidence Up; Euro Sinks on Debt Fear

Tuesday, 30 Nov 2010 11:45 AM

 

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LONDON (AP) — Buoyant U.S. consumer confidence figures failed to turn around investor sentiment Tuesday as worries that Portugal or even Spain will have to seek outside help for their debts continued to unsettle financial markets.

Those worries sent the euro plunging below $1.30 for the first time since mid-September as the cost of borrowing for both countries continued to edge up higher — a sign that investors are getting more and more concerned about holding Spanish and Portuguese debt.

By mid-afternoon London time, the euro was trading 1 percent lower at $1.2997, just ahead of its earlier low of $1.2968. That was the first time it had fallen below $1.30 since Sept. 16.

The selling was less pronounced in the stock markets, partly because share prices, particularly in Europe, had a miserable Monday, with most major indexes closing around 2 percent lower.

In Europe, the FTSE 100 index of leading British shares was down 11.41 points, or 0.2 percent, at 5,539.54 while Germany's DAX fell 14.48 points, or 0.2 percent, at 6,683.49. The CAC-40 in France was 33.02 points, or 0.9 percent, lower at 3,603.94.

In the U.S., the Dow Jones industrial average was down 64.86 points, or 0.6 percent, at 10,987.63 soon after the open while the broader Standard & Poor's 500 index fell 8.84 points, or 0.7 percent, at 1,178.92.

Some comfort emerged with the news that consumer confidence in the U.S. has ratcheted up in November ahead of the crucial Christmas buying season, another sign that the recovery in the world's largest economy is picking up pace.

The Conference Board reported that its main U.S. consumer confidence index rose to a five-month high of 54.1, from a revised 49.9 in October. Analysts were expecting a far more modest rise to 52.

However, Europe's debt crisis again dominated the markets' focus, with the bond markets in particular considering the likelihood of further bailouts, following the weekend's euro67.5 billion ($87.8 billion) rescue package for Ireland.

Although Portugal is widely considered to be the most at risk of a bailout, the major worry in the market is a possible bailout for Spain. Most analysts think European authorities can handle bailing out the relative minnows of Greece, Ireland and Portugal, but Spain — at around 12 percent of the eurozone economy — would be different matter altogether.

The Spanish yield on ten-year bonds rose another 0.16 percentage point Tuesday to 5.58 percent, while Portugal's was up 0.01 at 7.05 percent.

"The question of whether Portugal will get a bailout of its own seems to have been swept aside as investors ponder whether the authorities can afford to pre-emptively bailout Spain as they look well into the distance to review how much debt the local banking system has coming due over the next 12 months," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

Italy is also getting dragged into the mix. Italy's yield was up 0.3 percentage point to 4.67 percent. The yield had earlier risen as high as 4.74 percent.

"Worryingly, the deterioration in the European bond markets has now started to spread to Italian debt," said Wells Fargo analyst Vassili Serebriakov. "While the situation remains fluid and uncertain, European jitters are unlikely to fade away."

Trading across financial markets will likely be complicated Tuesday by the month's end, when investors square off positions, but most analysts think December will continue to be dominated by Europe's debt crisis.

Earlier in Asia, Chinese shares trimmed some losses after volatile trading that took the Shanghai benchmark down 3.4 percent at one stage on worries over fresh inflation-fighting measures. However, the Shanghai Composite Index closed down 1.6 percent to 2,820.18 while the Shenzhen Composite Index for China's smaller, second exchange fell 2.4 percent to 1,307.83.

Soaring prices in China, the world's No. 2 economy, are so far limited mostly to food, but analysts say price pressure could spread to other areas unless Beijing hikes interest rates and further tightens credit. Investors worry that might slow economic growth or reduce the amount of money flowing through the economy that is helping to finance stock trading.

Japan's Nikkei 225 stock average dropped 1.9 percent to close at 9,937.04 and Hong Kong's Hang Seng fell 0.7 percent to 23,007.99. Australia's S&P/ASX200 index shed 0.7 percent to 4,584.4.

The Nikkei's slump came after government figures that showed Japan's factories cut production for the fifth straight month in October, although the decrease wasn't as bad as expected. Unemployment worsened slightly and consumer spending fell in October, adding to Japan's struggle to keep its nascent economic recovery alive.

Benchmark oil for January delivery was down 66 cents to $85.07 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange.

___

Associated Press writer Pamela Sampson in Bangkok contributed to this report.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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