The euro hit its lowest level in more than two years and world equity markets fell sharply on Monday after reports that Spain's indebted regions need help fuelled fears the country would become the fourth eurozone member to ask for a major bailout. Investors sold off assets viewed as riskier and fled to the perceived safety of U.S., British and German government debt and the U.S. dollar as the concerns over economic growth and the plight of Spain drove investment decisions.
Crude oil tumbled more than 3 per cent, and yields on U.S., British and German government debt hit record lows. Yields on government debt in Spain set euro-era record highs.
Five-and-10-year German government bond yields hit new lows and U.S. Treasury-note yields hit their lowest. Ten-year U.S. Treasuries yields fell as low as 1.3977 per cent, and last traded up 9/32 in price to yield 1.4263 per cent.
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 per cent, above the 7 per cent level viewed as sustainable.
How Spain's 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euro 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, and was last down 0.24 per cent at $1.2093. Against the yen, it 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," “Mr. Sutton said.
U.S. stocks traded down more than one per cent lower, while equity markets in Europe and elsewhere fell more than 2 per cent. The Dow Jones industrial average was down 168.92 points, or 1.32 per cent, at 12,653.65. The Standard & Poor's 500 Index was down 19.35 points, or 1.42 per cent, at 1,343.31.
The Nasdaq Composite Index was down 54.66 points, or 1.87 per cent, at 2,870.64.
The FTSE Eurofirst 300 index of top European shares fell 2.3 per cent to 1,025.14 points, while MSCI's emerging markets index was down 2.8 per cent and the all-country world equity index fell 2 per cent.
Spain's main share index, the Ibex, was down 0.75 per cent, paring losses of about 4 per cent earlier in the session.
Highlighting Spain's urgent situation, the country must make coupon and redemption payments to bondholders totalling 20 billion euro ($24.3 billion) next Monday.
Spanish Economy Minister Luis de Guindos, who visits Berlin on Tuesday for talks with Germany's finance minister, has insisted Spain does not need a full sovereign bailout, such as those for Greece, Ireland and Portugal.
Data from the Commodity Futures Trading Commission released on Friday showed that currency speculators are increasing their bets in favour of the dollar as Europe's debt crisis shows signs of growing worse and threatens the global economy.
Brent Crude down
Oil prices briefly slipped below $103 a barrel.
Brent crude was down $4.13 at $102.70 a barrel, while U.S. crude fell $3.83 to $88 a barrel. — Reuters
A forecast from a Chinese central bank adviser that China’s economy could grow at a slower pace in the third quarter deepened concerns about the global slowdown.