Italy hopes buoy euro; stocks sag

2011-11-17 18:44

THE euro gained on Thursday after Italy’s new prime minister pledged additional economic reforms, but rising yields on eurozone debt kept alive concerns that the region’s debt crisis could spread, weighing on equities on both sides of the Atlantic.

A fall in new claims for US jobless benefit to a seven-month low did support risk appetite and helped the single European currency rise against the dollar after three straight sessions of losses.

Prices of safe haven US government debt fell on the data, which added to hopes that the economy may be in better shape than some had believed.

In Italy, Prime Minister Mario Monti outlined a broad raft of policy priorities, including pension and labour market reform, a crackdown on tax evasion and changes to the tax system, but investors remained worried about the future of the eurozone after Spain’s borrowing costs jumped to nearly 7% at an auction - the highest level since 1997.

“You can focus on the good data here, the corporate data, the economic data saying we are not in a recession,” said John Canally, an investment strategist and economist for LPL Financial in Boston. “But at the end of the day, bond yields in Europe will rule.”

The Dow Jones industrial average rose 22.94 points, or 0.19%, to 11 928.53, but the Standard & Poor’s 500 Index dipped 1.61 points, or 0.13%, to 1 235.30. The Nasdaq Composite Index was down 9.34 points, or 0.35%, at 2 630.27.

In Europe, the FTSEurofirst 300 index slid 0.9% to 961.90 points after falling to a more than one-month low of 950.94. Banking shares, which have slumped more than 35% so far this year due to their huge exposure to eurozone sovereign debt, were among the top decliners. The sector index fell 2.6%, led by KBC Groep, down 8.2%, and Lloyds, down 4.9%.

World stocks, measured by the benchmark MSCI All-Country World index, dropped 0.3%.

However, the euro gained 0.4% against the greenback, at $1.3517. It trimmed gains after a report by the Philadelphia Federal Reserve Bank showed factory activity pace in the US Mid-Atlantic region slowed more than expected in November.

Yields paid on 10-year Italian bonds were at 6.86% after reaching 7.259% earlier in the session. Spanish 10-year bonds were paying 6.5%.
The benchmark 10-year US Treasury note dipped 2/32 in price, with the yield at 2.007%.

US crude oil prices fell 1.55% to $100.99 per barrel, with losses pared after the better-than-expected US economic data.