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European Shares to Open Lower as Spain Fears Grow

Published: May 31, 2012 | 7:00 am
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European shares were called to open lower on Thursday as fears that Spain may not be able to rescue its own banks without the aid of an international bailout sparked fears of further crisis within the euro zone and brought the euro to a 2-year low versus the dollar.

The FTSE[.FTSE 5297.28 -93.86 (-1.74%) ] is called 16 points lower at 5275.5, the DAX [.GDAXI 6280.80 --- UNCH ] is seen opening lower by 8 points at 6273, and the CAC 40 [.FCHI 3015.58 --- UNCH ] is expected to open lower by 2 points at 3011.

European markets are lower across the board on the month, with the FTSE down 7.68 percent so far, the DAX down 7.11 percent and the CAC down 6.12 percent.

Spanish government bond yields surged to a six-month high while German bond yields fell to record lows, pushing the spread between the two to a fresh record high.

The euro [EUR= 1.2394 0.0029 (+0.23%) ] fell to as low as $1.2368 on Thursday in early Asian trade.

The common currency also fell to 97.74 yen, edging near an 11-year low of 97.04 yen, hit in January.

Oil [CLCV1 87.78 -0.04 (-0.05%) ] dropped more than 3 percent on Wednesday to its lowest level in seven months as fears about the euro zone crisis sparked an erosion in risk appetite across markets.

Prices for U.S. benchmark light sweet crude headed toward their biggest monthly drop since the financial crisis of 2008, breaking below a key technical level as investors headed to perceived safe havens.

Fear across global markets also led London luxury jeweler Graff Diamonds to pull its planned $1 billion Hong Kong initial public offering (IPO), the fourth major IPO to be called off in Asia this week.

The Spanish government is under mounting pressure to open an investigation into the collapse of Bankia amid public anger at the salaries of its directors and the losses of savers who bought the rescued bank’s shares, according to a report in the Financial Times.

Luis de Guindos, Spain’s finance minister, described 20 million euros of severance pay for two directors of the bank as “unacceptable,” calling for an investigation by the Bank of Spain.

Official figures in France indicated that the number of jobless people there rose for a twelfth month in April to stand at its highest since September 1999, highlighting the challenge facing new Socialist president Francois Hollande.

Elsewhere two of the world’s biggest trade credit insurers have stopped providing cover for exporters to Greece in highly unusual moves reflecting their concern that the country might leave the euro zone.

Brokers said the decisions by Euler Hermes and Coface were the only instances they could recall of trade credit insurers pulling out altogether from a European country.

On Wednesday, Eurogroup President Jean-Claude Juncker said the option of issuing joint euro zone sovereign debt to help stimulate growth in Europe remains on the table, despite ongoing German opposition to the proposals.

Juncker’s comments came as external Monetary Policy Committee member Adam Posen said there was sufficient likelihood that things could go very wrong in the euro zone.

While refusing to specifically cite a Greek exit from the euro zone, Posen made it very clear that an event on that scale would have devastating consequences both for the U.S. and the United Kingdom.

Away from the euro zone crisis, commodities trader Glencore [GLEN-GB 345.00 --- UNCH ] and miner Xstrata [XTA-GB 939.40 --- UNCH ] will send details of their much anticipated merger to shareholders on Thursday, including a three-year retention package set to be worth tens of millions of dollars for Xstrata boss Mick Davis Meanwhile,

Morgan Stanley [MS 13.09 -0.55 (-4.03%) ] Chairman and Chief Executive James Gorman defended the securities firm’s role in Facebook’s [FB 28.19 -0.65 (-2.25%) ] botched IPO, telling employees internally that the firm worked “100 percent within the rules” and calling the steep decline in Facebook’s stock “disappointing,” according to a Dow Jones report.

Morgan Stanley is being investigated by the Securities and Exchange Commission over its role in the IPO.


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