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Growing European Debt Crisis Weighs on Global Markets


European stocks fell and the euro hit a seven-week low on Friday, as record borrowing costs for Italy stoked fears the lack of a comprehensive policy response to the spiralling euro zone debt crisis would lead to a break-up of the currency bloc.

Italy paid a euro-era high 6.5 percent to borrow over six months, almost double the yield at a similar sale a month ago and much higher than market yields ahead of the auction.
It raised the full 10 billion euros planned but borrowing costs for Europe’s third-largest economy remain unsustainably high despite the appointment of an emergency government in Rome to undertake reforms and rein its massive debt.
“Judging from the reaction in (the euro) and Bunds, this is about as weak as the market was expecting,” said Peter Chatwell, rate strategist at Credit Agricole CIB.
“Today’s auctions indicate that conditions for euro-sovereign supply are still extremely poor, boding ill for the market ahead of next week’s bond market supply.”
Italian two-year government bond yields rose above 8 percent while the interest rate premium investors charge Italy to borrow over 10 years compared to equivalent German debt continued to rise despite reported buying by the European Central Bank.
German Bund futures also extended losses, reinforcing fears that debt contagion is starting to hurt the region’s soundest economy. Bund futures hit a session low, continuing to fall after a sharp sell-off in the wake of a weak 10-year bond auction on Wednesday.
European stocks lost ground for the ninth time in 10 sessions and were on course to post their biggest weekly loss in two months. The FTSEurofirst 300 index of top European shares was down 0.7 percent at 893.57 points.
It has lost about 13 percent since late October as investors fret over the slow pace of efforts to contain the debt crisis and Germany’s persistent opposition to the idea of joint euro zone bonds and an expanded role for the ECB.
French President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel, after talks with Italian Prime Minister Mario Monti on Thursday, agreed only to stop bickering in public over whether the ECB should do more to resolve the crisis.
Source: Fox Business

BCNN1 • November 25, 2011

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