New York: The euro dropped 1.5% on Monday after Spain’s weekend bailout of a small savings bank drove new fears about weaknesses in the European financial system, reviving safe-haven demand for gold and US Treasuries.
Stocks were volatile session, with the Dow and the S&P 500 hovering around the unchanged mark as bank shares fell but gain sin technology stocks drove up the Nasdaq. In Europe, stocks snapped a three-day losing streak as mining shares rose on a bright outlook for metals, offsetting declines in bank shares.
But news that Spain’s central bank on Saturday had taken over savings bank CajaSur after a failed merger weighed heavily on sentiment across financial markets.
CajaSur will now have access to Spain’s bank bailout fund. Analysts worry other banks could require public funds at a time when much of Europe is struggling with massive deficits.
“The Spanish news is not really a big story, but it does highlight that there are a lot of cracks in the financial system,” said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto. “The concern is that if these cracks get bigger, the question is who would be able to contain it. This is obviously a warning and we’ll see if it becomes more significant.”
Wall Street opened lower on the euro-zone fears, with the Dow losing 1% at one point, but trimmed losses later.
The Dow Jones industrial average was down 38.40 points, or 0.38%, at 10,154.99 around 1640 GMT. The Standard & Poor’s 500 Index dipped 1.37 points, or 0.13%, to 1,086.32, but the Nasdaq Composite Index rose 11.78 points, or 0.53%, to 2,240.82.
Bank shares were mostly lower following, with the Standard & Poor’s financial index down 0.8%. Shares of Citigroup, gained 3.7% after Goldman upgraded the bank to “buy” from “neutral.”
European trading was thin due to a religious holiday, but most markets were open. The FTSEurofirst 300 finished 0.33% higher, after sliding as much as 0.7% earlier.
Shares of miners supported European markets higher on a strong demand outlook for metals following comments by an official that China should be particularly cautious in introducing new monetary tightening measures. Gains were limited by worries that the euro zone’s debt crisis could hamper growth.
Plans outlined by British finance minister George Osborne and Treasury minister David Laws on Monday to cut £6.25 billion ($9 billion) of government spending generally hurt sentiment, traders said.
Global stocks as measured by MSCI were practically flat, after last week’s 4.8% loss.
But emerging markets stocks rose 0.8%, as rising prices of oil and other raw materials supported the outlook for commodity-exporting countries.
US crude oil futures edged up in choppy trading as some analysts said the market was oversold, but concerns about Europe curbed a sharp recovery in prices. The oil contract for July CLN was up 0.36%, at $70.29 per barrel.
Euro plunges again
The euro fell broadly on Monday, as persistent concerns about the euro-zone debt situation threatened the future of the single currency.
The news wiped out last week’s short-covering rally in the euro, which had been spurred by talk European monetary officials might intervene to prop up the beleaguered single currency.
The euro was down 1.54% at $1.2376. Last week, it reached a four-year low of $1.2143.
Data showing US existing home sales rose more than expected in April briefly pushed the euro to session lows against the dollar at $1.2345, according to EBS data.
“People are piling money into dollars and Treasuries, hoping they can ride out the storm,” said John Canally, economist and investment strategist at LPL Financial in Boston.
Benchmark 10-year US Treasury notes rose 8/32 in price, with the yield at 3.2069%.
As aversion to risk rose, spot gold prices climbed 1.06% to $1,187.60.