Euro Weakens for Second Day, Asian Stocks Decline on Ireland Debt Concerns
The euro fell for a second day as Asian stocks and commodities dropped amid speculation that a bailout for Ireland will fail to stem Europe’s debt crisis and that China will intensify efforts to tame inflation.
The single currency weakened versus 12 of its 16 major counterparts and fell 0.4 percent to $1.3574 as of 2 p.m. in Hong Kong. The MSCI Asia-Pacific excluding Japan Index sank 1.5 percent to 458.22, set for its biggest decline since Nov. 12, while the S&P GSCI Index of commodities slipped for a third day. Futures on the Standard & Poor’s 500 Index sank 0.4 percent. Japan’s markets are closed for a holiday.
Irish bonds pared gains while default swaps on its debt surged yesterday after Moody’s said a “multi-notch” downgrade to Ireland’s Aa2 credit rating is “most likely” and as Prime Minister Brian Cowen called elections as support for his government unraveled. In China, the benchmark Shanghai index fell to its lowest level in six weeks, fueled by concern policy makers will add to last week’s increase of bank reserve ratios.
There’s concern “Ireland’s troubles could spill over into other smaller European Union countries, while the collapse of the government just reinforces the political realities,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees $135 billion. “Markets are also worried that China’s attempts to slow the economy and control inflation could weigh on commodity demand.”
The euro weakened for a second day against the yen, sliding 0.1 percent to 113.40. The dollar traded at 83.41 yen from 83.34 yen in New York yesterday. Australia’s dollar declined for a third day against the Japanese currency, while South Korea’s won dropped 0.7 percent to 1,133.10 per dollar as Ireland’s debt crisis eroded demand for higher-yielding assets.
Ireland’s Green Party called for a January election, saying the prime minister “misled” voters about the need for aid. Cowen plans to announce the government’s four-year budget plan this week and said an agreement with the EU and the IMF will come “in the next few weeks.”
“The risk to markets is that no one knows if the new government next year will stick to the budget that will be announced later this year,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “Political uncertainty has caused the positive response out of the package to be short-lived. The euro is struggling.”
The Irish aid plan, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), failed to assuage concern that the Europpean debt crisis may spread. Default swaps on Portugal jumped 40.8 basis points to 457.6 and contracts on Greece climbed 37 basis points to 1,006.4 yesterday, according to data provider CMA.
The Markit iTraxx Asia index of swaps on 50 investment- grade borrowers outside Japan rose 2.5 basis points to 103.5 in Hong Kong today, Credit Agricole CIB prices show. The Markit iTraxx Australia index climbed 2 basis points to 106, according to Nomura Holdings Inc.
Both risk benchmarks are headed for their biggest increases since Nov. 16, according to CMA in New York.
South Korea’s Kospi index fell 0.8 percent as Hyundai Motor Co., which sells vehicles in Europe, dropped 3.1 percent. Hong Kong’s Hang Seng Index lost 1.8 percent and China’s Shanghai Composite Index declined 2.7 percent, after the People’s Daily newspaper said that the government must “temporarily” intervene to control prices where necessary.
PetroChina Co., the nation’s largest oil producer, sank 3.4 percent in Shanghai while Jiangxi Copper Co. dropped 6.4 percent. BHP Billiton Ltd., the world’s biggest mining company, fell 1.7 percent in Sydney.
The S&P GSCI Index of commodities fell 0.6 percent, extending a two-day, 1.2 percent drop. Copper and zinc also retreated for a third day in London, declining as much as 1.6 percent and 1.8 percent, respectively. Crude oil slumped 0.8 percent to $81.12 a barrel in New York after earlier gaining as much as 0.4 percent.
China’s benchmark money-market rate rose to the highest level in almost seven weeks on speculation policy makers will lift borrowing costs after raising banks’ reserve requirements last week to tame inflation. The seven-day repurchase rate, which measures lending costs between banks, advanced by 2 basis points to 2.22 percent, the highest since Oct. 8, according to the National Interbank Funding Center.
The S&P 500 declined 0.2 percent yesterday after raids on three investment firms by the Federal Bureau of Investigation. Hewlett-Packard Co. rose 2.7 percent in afterhours trading after the world’s largest computer maker forecast first-quarter profit that exceeded analysts’ estimates.
Data due today may show the U.S. economy grew at a 2.4 percent annual pace in the third quarter, more than the 2 percent pace estimated last month, according to the median forecast of economists surveyed by Bloomberg News. A separate survey said figures from the National Association of Realtors may show that existing home sales slid 1.1 percent in October from September, the first decline in three months.
Treasury yields were within 1 basis point of a one-week low, with benchmark 10-year notes yielding 2.8 percent.
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