* MSCI Asia ex-Japan falls 0.7 pct, Nikkei turns negative
* Euro down 0.3 pct but off 2-month low vs dollar
* Risk assets down broadly
* European shares likely start trading mixed
By Chikako Mogi
TOKYO, April 17 (Reuters) – Asian shares and the euro fell on Tuesday, as
surging Spanish borrowing costs underscored the fading impact of the European
Central Bank’s bond purchases and stoked investor nervousness over euro zone
debt woes, sapping their risk appetite.
Oil and the Australian dollar slipped while a firmer dollar dented appetite
for safe-haven gold, which eased 0.3 percent to fall below a key technical level
of $1,650 an ounce.
Spanish 10-year government bond yields rose above 6 percent on
Monday for the first time since the beginning of December, fuelling concerns
that Madrid could fail to meet deficit targets as the country acknowledged it
has probably tipped into its second recession since 2009.
That would raise the risk of the euro zone’s fourth largest economy being
pushed into seeking an international bailout.
Spain, which has already completed almost half its debt issuance plans for
this year, faces a fresh test of investor confidence when it sells 12- and
18-month Treasury bills later on Tuesday, ahead of more significant auctions of
two- and 10-year bonds on Thursday.
“Investors are beginning to question if Spain’s fiscal austerity measures
could be sustainable as its economy deteriorates, while sluggish growth would
push housing prices lower and raise the risk of nonperforming loans ballooning,”
said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan
Stanley Securities in Tokyo.
“The Spanish yields are rising but still well below critical levels, showing
that investors are not yet convinced of a full-blown risk scenario developing.”
MSCI’s broadest index of Asia Pacific shares outside Japan
gave up small early gains and deepened losses to fall 0.7 percent, bringing most
regional bourses into negative territory, including Japanese and Australian
shares which had earlier bucked the negative trend.
Nikkei average edged down 0.1 percent and Australian shares
fell 0.3 percent after failing to hold above a key technical level as
commodities prices slid on worries over weak demand.
European shares were heading for a mixed start on Tuesday with financial
spreadbetters predicting that major European markets
would open 0.1 percent lower to 0.2 percent higher.
Indian shares trimmed earlier gains after the central bank cut
interest rates on Tuesday for the first time in three years by an unexpectedly
sharp 50 basis points to boost the economy.
The euro was down 0.3 percent on the day at $1.3102, after hitting a
two-month low around $1.2994 on Monday. The Australian dollar fell 0.3
percent to $1.0316.
If Spanish yields keep rising and pull other peripheral sovereign debt
yields higher along the way, the European Central Bank will face growing
pressure to resume its bond purchases after its last such step on Feb. 29.
Spanish banks are by far are the biggest borrowers from the ECB.
“We think the current amount of liquidity seems sufficient to cover funding
needs in Italy and Spain, at least for now. That being said, the market may be
asking for reassurance further out,” Barclays Capital analysts said in a
research note.
BUNDS RALLY
Germany’s government bonds, viewed as the euro zone’s safest debt, rallied
strongly on Monday as Spanish yields soared and the cost of insuring Spanish
debt against default hit a record high, while Italian 10-year yields remained
elevated at almost 5.6 percent.
As pressure mounts for more support from authorities to calm market
nervousness, a meeting of the International Monetary Fund later in the week will
be a key focus for the markets. A plan to raise new resources for the global
lender to contain the euro zone debt crisis tops the agenda.
Gold failed to benefit from its safe-haven appeal on Tuesday as investors
turned to the U.S. dollar instead.
“People may buy into the dollar as a safe haven, which causes some kind of
neutral trade in gold,” Lynette Tan, an analyst at Phillip Futures in Singapore,
said.
Oil futures extended losses after falling more than 2 percent on Monday on
news that a major pipeline reversal that will alleviate a large U.S. bottleneck
may start ahead of schedule.
Brent crude was down 0.4 percent to $118.21 a barrel after settling
down $2.53, while U.S. crude fell 0.1 percent to $102.90.
“Euro zone concerns are affecting all risk assets at the moment, with the
bearish zone suggesting that Greece was just the side show and Spain’s the real
game,” said Ben Le Brun, market analyst at OptionsXpress.
“Elsewhere the economic data is positive, but if something falls over in
Spain and Italy, they’re too big to fail and too big to bail and will likely
create a domino effect.”
U.S. retail sales rose 0.8 percent in March, above forecasts for a 0.3
percent increase, as Americans shrugged off high gasoline prices, indicating
solid consumer spending which accounts for more than two-thirds of U.S.
economic activity.
Asian credit markets firmed slightly, with the spread on the iTraxx Asia
ex-Japan investment-grade index tightening by 2 basis points.
