* Spain signals distress over rising borrowing costs
* G7 agrees to work together to deal with debt crisis
* U.S. services sector’s growth picks up modestly in May
By Wanfeng Zhou
NEW YORK, June 5 (Reuters) – The euro fell and German bond
prices gained o n T uesday as the euro zone’s debt crisis showed
signs of escalating after Spain said it was being shut out of
credit markets.
World stocks advanced, with the major U.S. stock indexes
bolstered by data showing the U.S. services sector grew at a
slightly faster pace in May as new orders improved.
The treasury minister of Spain, the euro zone’s
fourth-largest economy, said high borrowing costs meant credit
markets were closing to his country, and he made an appeal to
the European Union to help Madrid recapitalize its debt-laden
banks.
Finance ministers from the Group of Seven major economies
discussed progress toward financial and fiscal union in Europe
after an emergency call but made no joint statement.
“None of these meetings have produced anything meaningful,
and with debt burdens piling up across the globe, I remain
highly doubtful that anything substantive will be implemented,
and anything that falls short of fiscal union in Europe will
allow the crisis to proliferate,” said Christopher Vecchio,
currency analyst at DailyFX in New York.
The euro, which early in the day hit a one-week high of
$1.2542, fell 0.3 percent to $1.2452.
German debt futures rallied to a high of 146.34,
before easing to trade flat on the day.
The risk premium that investors demand to hold Spanish
10-year debt rather than safe-haven German bonds hit a euro-era
high of 548 basis points on Friday on concerns that Spain will
eventually be forced to seek a Greek-style bailout.
Despite the concern over Europe, world and U.S. stocks
recovered some ground from their recent swoons. The MSCI world
equity index rose 0.6 percent to 292.91.
The Dow Jones industrial average gained 26.49 points,
or 0.22 percent, at 12,127.95. The Standard & Poor’s 500 Index
was up 7.32 points, or 0.57 percent, at 1,285.50. The
Nasdaq Composite Index was up 18.10 points, or 0.66
percent, at 2,778.11.
“Europe’s obviously a concern, but we’ve been selling off
for weeks on that,” said Peter Boockvar, equity strategist at
Miller Tabak & Co in New York. “A slightly better-than-expected
services number, which makes up the majority of the U.S.
economy, is a sigh of relief in the face of a lot of
bearishness.”
In Europe, stocks advanced in a nervous, choppy session as
investors bought beaten-down shares on hopes for global central
bank policy action to revive the economic recovery.
The euro zone’s blue-chip Euro STOXX 50 index
closed up 0.4 percent, with volumes thinned by a second day of
UK public holidays.
After Tuesday’s G7 finance ministers’ conference call,
investors are waiting for a European Central Bank policy meeting
on Wednesday, Federal Reserve Chairman Ben Bernanke’s testimony
before the U.S. congressional Joint Economic Committee on
Thursday, and the Greek elections and G20 meeting in Mexico,
which are both on the weekend of June 17.
Funding options are narrowing for companies across the
globe, as issuers are shut out of markets due to risk aversion
for weaker credits and demand for spread that is driving costs
sharply higher.
EURO ZONE IN DECLINE
Spain will test the market on Thursday by issuing between 1
billion euros ($1.24 billion) and 2 billion euros in medium- and
long-term bonds at auction.
Adding to the bearish sentiment, all of the euro zone’s
major economies are now in various states of decline, according
to business surveys that heaped more pressure on Europe’s
leaders to stop the region from becoming the center of a new
global crisis.
The dollar rose 0.5 percent to 78.73 yen, hitting a
session high after Japan’s finance minister, Jun Azumi, said a
strong yen is damaging Japan’s economy.
The price of Brent July crude settled near flat at
$98.84 a barrel after a choppy session, coming back from a
16-month low of $95.63 on Monday. U.S. July crude gained
31 cents to settle at $84.29 a barrel.
Spot gold eased slightly to $1,618 an ounce.
The benchmark 10-year U.S. Treasury note shed
13/32 in price with the yield at 1.57 percent as traders booked
profits on a rally that pushed yields to historic lows. The
benchmark 10-year note’s yield touched an all-time low of 1.44
percent on Friday.
The 30-year bond led the way down, falling
1-17/32 in price to yield 2.63 percent.
“Treasuries had rallied so much over the last week and last
month that we are just seeing some of that taken back yesterday
and today,” said Eric Stein, vice president and portfolio
manager at Eaton Vance Investment Managers in Boston.
