* Portugal bonds, stocks slide as political crisis deepens
* European shares fall 1.2 percent, periphery bonds tumble
* Dollar touches one-month high vs basket of currencies
* Asian stocks fall as China services growth hits nine-month
low
* Oil rises on worries over Mideast tensions
By Marc Jones
LONDON, July 3 (Reuters) – Portugal’s 10-year bond yield
shot above 8 percent and its stock market slumped 6 percent on
Wednesday as deepening political turmoil in the bailed-out euro
zone member threatened to reignite the bloc’s crisis.
Signs that Chinese growth is slowing also weighed on shares,
while oil jumped to a 14-month high on fears that political
unrest in Egypt will disrupt supply.
The threat of more resignations from Portugal’s government
after the surprise departure of its finance minister this week
set alarm bells ringing again across the euro zone bond market.
The turmoil could trigger a snap election and derail Lisbon’s
exit from its European Union/International Monetary Fund
bailout.
Spanish and Italian yields rose and the cost of insuring
periphery debt against default jumped, with nervousness over
whether Greece will receive its next tranche of bailout money
adding to fears the debt crisis will erupt again.
.
“Something had to happen, two months in a row with no action
in the euro zone is very unusual,” said Uwe Z
llner, head of
Pan-European equities at Franklin Equity Group.
“People are nervous at the moment anyway. We have seen a
good start to the year and now we get the mixed data from China,
and we see headlines again about political unrest in
oil-producing countries, so people are probably taking the news
from Portugal worse than they otherwise would have done.”
The returns investors demand to hold Portugal’s 10-year
bonds surged to above 8.1 percent for the first
time since November and the PSI 20 stock index slumped
6 percent, led by losses of over 10 percent in bank shares.
The broad sell-off in riskier European assets left the
region’s FTSEurofirst 300 share index down 1.2 percent
by mid-morning while the euro was hovering at its lowest
level since late May.
The day had got off to a downbeat start, with Asian stock
markets falling after official Chinese figures showed growth in
the services sector sagged to its weakest pace in nine months,
adding to signs of a slowdown in the world’s No. 2 economy.
EGYPT UNREST
Growing unrest in Egypt and fears it could disrupt Middle
East supplies drove oil prices higher for a third day, sending
U.S. crude above $100 barrel for the first time in 14 months.
The Egyptian military has set a deadline of about 5:00 p.m.
local time (1500 GMT) for President Mohamed Mursi to agree to a
power-sharing deal with his rivals, an ultimatum that Mursi has
firmly rejected.
Traders are also expecting data due later to show a sharp
drop in crude oil stocks held by top consumer the United States.
“Middle East tensions are always going to put a cushion
under the price while there is some tight supply going on in the
U.S.,” Ben Le Brun, a markets analyst at OptionsXpress in Sydney
said. “It’s double positive news for crude.”
The first rise in European retail sales for four months and
a more-than-one-year high for Markit’s final composite Eurozone
Purchasing Managers’ Index (PMI) could not overcome the concerns
over Portugal and Greece.
Investors were instead heading for traditional safe-haven
assets, with German Bunds, the dollar, the yen and the Swiss
franc all rising.
The U.S. dollar hit a one-month high against a basket of
major currencies, staying firm after a recent string of
generally solid U.S. economic data supported the view that the
Federal Reserve could scale back its stimulus later this year.
The dollar index, which measures the greenback’s
value against a basket of major currencies, rose to as high as
83.635, the highest since late May, while Portugal’s troubles
pushed the euro to $1.2923, its lowest in over a month.
“Portugal is by far the biggest focus,” said Derek Halpenny,
European Head of Global Currency Research at BTMU.
“For the euro this is a slow grind lower … The euro has
been fairly resilient against the dollar and the market will
initially treat this with caution but it is clearly a euro
negative.”
