Asia stocks slip as euro zone fears focus on Spain

(Reuters) – Asian shares slipped on Tuesday as a post-Greek election relief rally quickly ran out of steam, with rising Spanish and Italian bond yields signalling that European leaders still have much to do to contain the euro zone debt crisis.

A Tokyo Stock Exchange employee looks up at a monitor displaying market indices at the bourse in Tokyo June 18, 2012. REUTERS/Yuriko Nakao

The euro steadied but remained just shy of $1.26, a good distance off the high of $1.2748 scaled in early Asian trading on Monday, when markets were cheering a narrow victory for parties that support Greece’s international bailout deal.

MSCI’s broadest index of Asia Pacific shares outside Japan slipped 0.2 percent, while Tokyo’s Nikkei share average lost 0.3 percent. Both indexes had climbed more than 1.5 percent on Monday.

While Sunday’s election result removed concerns that Greece could imminently be forced out of the euro zone, it brought no relief to broader worries that the two-and-a-half-year-old debt crisis is spreading to some of the bloc’s larger economies.

yields on both Italian and Spanish bonds rose, with Spain’s 10-year yield climbing above the 7 percent mark at which other highly indebted euro zone nations were forced to seek bailouts.

European authorities have already agreed to a 100 billion euro rescue for Spain’s troubled banks.

“Spanish yields have shot through the highs from November, and even the short end is now looking shaky,” said Jens Nordvig, global head of FX strategy at Nomura in New York. “Europe is facing much greater challenges than the risk of a Greek exit.”

European equity markets gave up early gains to end down or flat on Monday and U.S. stocks were subdued.

The euro traded around $1.2592 on Tuesday, up a little on the day but down around 0.5 percent from Friday’s close.

Leaders from the Group of 20 countries meeting in Mexico will press Europe to take bold action to combat the region’s debt crisis, according to a draft communique prepared for the two-day summit.

Oil and copper, which had raced higher with other riskier assets on Monday, were both softer. Brent crude slipped around 10 cents to below $96 a barrel, while copper eased around 0.2 percent to just below $7,500 a tonne.

Investors were reluctant to commit large bets ahead of a two-day Federal Reserve policy meeting starting on Tuesday, with attention focused on whether the U.S. central bank will unveil any more stimulus measures to support flagging growth.

(curtsey : reuter)

Rupesh Yatesh Dalal
Head Research Department

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