Stocks, euro slide on fears of wider debt crisis

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A man is reflected on an electronic board displaying stock prices outside a brokerage in Tokyo November 10, 2011.

Credit: Reuters/Toru Hanai

By Herbert Lash

NEW YORK | Wed Nov 16, 2011 10:53am EST

NEW YORK (Reuters) - Global equity markets and the euro slid on Wednesday after the European Central Bank's buying of regional sovereign debt failed to stem a bond sell-off in the euro zone or to calm fears the debt crisis was spreading.

Wall Street stocks lost almost 1 percent and the euro fell for a third straight session against the dollar to hit a five-week low as investors doubted the ability of governments in the euro zone to contain the crisis,

The ECB's buying of Italian and Spanish bonds brought only temporarily relief in the markets and yields resumed climbing once the intervention stopped.

French borrowing costs rose, with the yield premium of the French 10-year government bond over German Bunds rising to a new euro-era high near 2 percent.

France has become the latest target of investor unease as a solution to the region's two-year debt crisis remains elusive. Contagion from the crisis has spread to other top-rated sovereign issuers such as the Netherlands and Austria.

The euro was down 0.3 percent at $1.3496.

"The outlook for the euro is worsening gradually because clearly there's been contagion in the euro zone debt markets," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.

The pan-European FTSEurofirst 300 index .FTEU3 of top European shares was down 0.2 percent at 968.04.

The Dow Jones industrial average .DJI was down 72.73 points, or 0.60 percent, at 12,023.43. The Standard & Poor's 500 Index .SPX fell 6.79 points, or 0.54 percent, to 1,251.02. The Nasdaq Composite Index .IXIC was down 11.23 points, or 0.42 percent, at 2,674.97.

Analysts called a 0.1 percent drop in the U.S.Consumer Price Index in October a nonevent for markets.

U.S. consumer prices fell last month for the first time in four months as Americans paid less for new cars and gasoline. But prices outside of food and energy posted a slight increase, the Labor Department said.

The dollar extended gains versus the euro after the inflation data.

The U.S. Dollar Index .DXY, a basket of major trading-partner currencies, was up 0.3 percent at 78.089.

"Obviously the debt crisis is front and center but the data here is improving, which should provide a bit more tail wind for the dollar," said Omer Esiner, senior market strategist at Commonwealth Foreign Exchange in Washington.

U.S. Treasuries prices gained as Europe's government debt market was again hit with a sell-off.

The benchmark 10-year U.S. Treasury note was up 8/32 in price to yield 2.02 percent.

Brent crude fell on worries the debt crisis will slow economic growth.

"There's a focus on sovereign debt yields; they are still a concern and they are driving prices," said Olivier Jakob at Petromatrix in Zug, Switzerland.

But U.S. crude futures rose above $101 a barrel on news that owners of the Seaway pipeline plan in 2012 to reverse the flow of oil, a move that would relieve an oil glut in Cushing, Oklahoma, the delivery point for New York futures contracts.

Brent crude fell 24 cents to $111.94 a barrel, while U.S. oil rose $2.42 to $101.79.

(Reporting by Wanfeng Zhou in New York; Brian Gorman, Emelia Sithole-Matarise, Amanda Cooper and Simon Falush in London; Writing by Herbert Lash; Editing by Theodore d'Afflisio and Dan Grebler)