BL: Euro, Stocks Fall on Greece Bailout, China Curbs; Futures Gain
By Justin Carrigan
May 3 (Bloomberg) -- The euro weakened, snapping three days of gains, and European shares dropped as the rescue plan for Greece failed to calm concern about the region’s sovereign debt. U.S. stock futures rose.
The euro declined against 13 of its 16 most-traded counterparts as of 7:16 a.m. in New York, giving up all the gains from the end of last week. The extra yield investors demand to hold Greek 10-year notes instead of benchmark German bunds narrowed 47 basis points, while Spain and Portugal’s were little changed. The Stoxx Europe 600 Index fell 0.3 percent. Futures on the Standard & Poor’s 500 Index advanced 0.5 percent before a U.S. report that may show manufacturing expanded at the fastest pace since 2004.
“The fear of contagion is still present in the market,” said Glenn Marci, a fixed-income strategist in Frankfurt at DZ Bank AG, Germany’s biggest cooperative lender. “People have been skeptical about the euro zone and it will take weeks for that to unwind.”
Investors are concerned the $146 billion Greek bailout by the European Union and International Monetary Fund will fail to stem market contagion in Portugal and Spain, even if it succeeds in preventing Prime Minister George Papandreou’s government from defaulting.
Euro Weakens
The euro fell 0.5 percent versus the dollar, erasing a similar gain on April 30 and bringing its decline this year to 7.6 percent. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose for the first time in three days, adding 0.4 percent.
Greece’s two-year note slid 224 basis points to 11.32 percent. That’s still more than double the level of April 1. The spread between the country’s 10-year bonds and similar-maturity German notes narrowed to 547 basis points from 595 basis points.
The Portuguese two-year yield dropped 6 basis points and the spread between the 10-year bonds and German notes fell to 209 basis points from 212 basis points. Spain’s yield rose to 2.07 percent and the gap with bunds remained at 101 basis points.
The MSCI World Index of 23 developed nations’ stocks fell 0.3 percent. TGS Nopec Geophysical Co. ASA sank 2.2 percent after saying the oil spill in the Gulf of Mexico is located within its survey boundary. TNT NA slipped 1.2 percent after forecasting lower mail volumes.
Greek Stocks
Greece’s ASE Index declined 1.3 percent. National Bank of Greece SA, the nation’s biggest lender, gained 0.4 percent.
The MSCI Asia Pacific excluding Japan Index slipped 1.4 percent. BHP Billiton Ltd., the world’s biggest mining company, sank 3 percent in Sydney. Stock exchanges in London, Tokyo and China were closed for holidays.
Industrial & Commercial Bank of China Ltd., the nation’s biggest bank by market value, fell 1.2 percent in Hong Kong after the People’s Bank of China said at the weekend it will raise the reserve requirement by 50 basis points effective May 10.
The MSCI Emerging Markets Index declined 1 percent, snapping two days of gains, as financial shares dropped. South Korea’s Shinhan Financial Group Co. slid 1.2 percent as the Kospi Index dropped 1.2 percent. The won weakened against all 16 most-traded currencies.
U.S. Futures
The gain in U.S. futures indicated the S&P 500 may rally after tumbling 1.7 percent on April 30, more than the 0.7 percent drop in the Stoxx 600. Goldman Sachs Group Inc. rallied 1.4 percent in early trading in New York after billionaire Warren Buffett said the bank shouldn’t be blamed for losses sustained by clients who invested in mortgage bets.
Manufacturing probably expanded in April at the fastest pace since 2004, propelling a U.S. recovery that’s getting a bigger lift from consumer spending, economists said before a report from the Institute for Supply Management due at 10 a.m. in New York. A separate report from the Commerce Department may show personal spending rose in March by the most in five months, according to economists surveyed by Bloomberg News.
Mergers boosted U.S. stocks as UAL Corp. and Continental Airlines Inc. agreed to combine and Buffett said he is looking for new deals.
Copper fell to a seven-week low in New York, snapping three days of gains, and crude oil slipped after China raised bank reserve ratios for the third time this year to cool speculative real-estate purchases, damping demand for raw materials. Copper for July delivery lost 3.2 cents to $3.3215 a pound on the Comex division of the New York Mercantile Exchange. June crude oil rose 0.5 percent to $86.55 a barrel on the Nymex.
Credit Downgrades
Greece’s three-year financial lifeline requires the nation to cut its budget deficit to below the EU limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The deficit was 13.6 percent last year, the region’s second-biggest, after Ireland.
Standard & Poor’s last week cut Greece’s credit rating to the junk level of BB+, lowered Spain by one level to AA and cut Portugal by two steps to A-. The downgrades last week helped drive the yield premium on Portugal’s 10-year bonds over similar-maturity German notes to the highest level since at least 1997 and that for Spain’s debt to the most since March 2009.
To contact the reporter for this story: Justin Carrigan in London at Jcarrigan@bloomberg.net
Last Updated: May 3, 2010 07:25 EDT
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