Singapore: The euro held near a two-month low on Tuesday and major stock indexes edged lower as fears that Ireland’s fiscal problems could spread to more euro zone countries weighed on investor sentiment.
An €85 billion rescue package for Dublin and a permanent debt resolution system, agreed by euro zone ministers at the weekend, were designed to stop a debt crisis that has engulfed Greece and Ireland from moving on to Portugal and, perhaps, Spain.
But it calmed few nerves in financial markets. The euro slumped to $1.3065 on Monday, a low not seen since 21 Sept ember, and yields on Italian and Spanish 10-year bonds jumped 20 basis points, the biggest daily rise in more than a decade.
The euro was little changed in Asian dealings, trading at $1.3135 and US Treasuries rose, adding to a rally on Monday, as investors continued to seek out safe-haven investments. Spot gold, another safe-haven favourite, was marginally higher.
“You probably have more selling to come through,” said Richard Grace, currency strategist at Commonwealth Bank, referring to the euro. “Movements in European bond yields were savage last night... and that’s a reflection of the concern that is evident in the market. I don’t think this is over just yet.”
The single currency has fallen about 6% against the dollar this month alone and is on track for its biggest monthly fall since May, when it fell 7.5%.
Concerns about the euro zone’s debt problems weighed on major stock indexes. Japan’s Nikkei share average slipped 0.6 percent, coming off a five-month closing high on Monday. Australian stocks dropped 0.5%, Seoul shares opened 0.3% lower and Hong Kong’s Hang Seng fell 0.6%.
The correlation between the euro and stocks has become more pronounced in recent weeks as the euro zone’s debt problems resurfaced, with traders selling the euro and stocks together.
However, the broader MSCI index for shares outside of Japan rose 0.4%.
Spot gold was a touch higher at $1,367 an ounce, while oil prices gave up some of their Monday gains to trade at $85.40 per barrel. NYMEX crude futures rose more than 2 % on Monday off the back of a rally in heating fuel after cold weather gripped Europe.