NEW YORK (Reuters) – World equity markets sold off and the euro plumbed to new two-year lows against the dollar on Monday after reports that more indebted regions in Spain need financial aid fueled fears that the country may need a bailout.
Investors fled to the perceived safety of safe-haven government debt and the U.S. dollar as concerns about economic growth, the plight of Spain and renewed market talk of a possible Greek exit from the euro zone drove investment decisions.
Crude oil tumbled 3 percent, and yields on U.S., British and German government debt hit record lows. But yields on government debt in Spain set euro-era record highs, easing later in the session.
Five- and 10-year German government bond yields hit new lows and U.S. Treasury-note yields hit their lowest since the early 1800s. Ten-year U.S. Treasuries yields fell as low as 1.3977 percent, and last traded up 7/32 in price to yield 1.4347 percent.
Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to a euro-era high of more than 7.5 percent, above the 7 percent level viewed as sustainable.
How Spain’s 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euros in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.
The euro slid as low as $1.2067, its weakest since June 2010, but later pared losses to trade about flat at $1.2122. Against the yen, the euro was near a 12-year trough.
“The week is off to a challenging start as rising fears over Europe push risk aversion higher,” said Camilla Sutton, chief currency strategist at Scotia bank in Toronto.
“Most of the focus is on Spain, with rising concern it too will need to access financial aid,” Sutton said.
The International Monetary Fund dismissed a weekend news report that it may refuse to continue supporting Greece as it prepares for talks with the new Greek government on its international bailout.
Worry over Greece resurfaced with international lenders scheduled to gather in Athens to discuss the terms of further rescue payments after its prime minister said the country was mired in a “Great Depression”.
“All it does is it brings up that whole crisis again – all that tells you it really didn’t go away,” said Ken Polcari, managing director at ICAP Equities in New York.
U.S. stocks fell more than 1 percent, while equity markets in Europe fell 2 percent or more.
The Dow Jones industrial average was down 147.88 points, or 1.15 percent, at 12,674.69. The Standard & Poor’s 500 Index was down 18.40 points, or 1.35 percent, at 1,344.26. The Nasdaq Composite Index was down 52.76 points, or 1.80 percent, at 2,872.54.
The FTSE Eurofirst 300 index of top European shares fell 2.3 percent to a provisional close of 1024.84 points, while MSCI’s emerging markets index was down 2.8 percent and the all-country world equity index fell almost 2.0 percent.
Spain’s main share index, the Ibex, closed down 1.1 percent, paring losses of more than 4 percent earlier in the session.
Highlighting Spain’s urgent situation, the country must make coupon and redemption payments to bondholders totaling 20 billion euros next Monday.
Spanish Economy Minister Luis de Guindos has insisted Spain does not need a full sovereign bailout, such as those for Greece, Ireland and Portugal.
Oil prices briefly slipped below $103 a barrel.
Brent crude was down $3.27 at $103.56 a barrel, while U.S. crude fell $2.95 to $88.88 a barrel.
The Reuters/Jefferies CRB Index of 19 commodities was down 4.62 points, or 1.52 percent, at 299.95.
Spot gold prices fell $4.43, or 0.28 percent, to $1578.30.
(Additional reporting by Richard Hubbard in London; Editing by Kenneth Barry)