Euro Weakens, Stocks Fall, Greek Bonds Drop on Rating Concern

happylux

Feb. 25 (Bloomberg) -- The euro weakened to a one-year low against the yen and stocks fell worldwide as Moody’s Investors Service and Standard & Poor’s said they may cut Greece’s rating. Bonds rose, driving German two-year yields to a record low.

The yen strengthened against the 16 most-traded currencies and the dollar gained compared with 15 at 8:21 a.m. in New York. The MSCI World Index of shares in 23 developed nations fell 0.5 percent and March futures on the S&P 500 declined 0.7 percent. The yield premium on Greek 10-year bonds versus German debt widened to the most since Feb. 8.

The warnings by Moody’s and S&P rattled investors who had driven the euro down more than 8 percent against the yen in 2010 on concern Greece’s fiscal woes may spread to other nations in the currency group. Federal Reserve Chairman Ben S. Bernanke testifies to Congress today after saying yesterday that the U.S. economy is in a “nascent” recovery and requires low interest rates to stoke demand.

“Signs of discomfort with sovereign debt are surfacing, with investors putting upward pressure on interest rates in developed nations in Europe,” Tony Crescenzi, a strategist and fund manager at Pacific Investment Management Co. in Newport Beach, California, wrote in a research note.

The cost of protecting Greek government debt from default using derivatives rose almost 4 basis points to 386 basis points, up from 130 at the end of October. The yield on Greek two-year notes rose 49 basis points to 6.23 percent, up from 1.42 percent at the end of October.

Greek Turmoil

Greece’s ASE Index fell 1.7 percent, the biggest decline among 18 western European benchmarks. The premium that investors demand to hold Greek 10-year bonds over German debt widened 9 basis points to 348 basis points, quadruple the average over the past five years.

Greece has to repay more than 20 billion euros ($27 billion) of maturing bonds and bills by the end of May, according to data compiled by Bloomberg. A Moody’s downgrade may make it harder for the nation’s banks to fund themselves by making Greek government debt ineligible as collateral for European Central Bank loans.

The yield on 10-year Treasuries fell 3 basis points to 3.66 percent, the lowest since Feb. 10. The Treasury plans to sell $32 billion of seven-year notes today, the last of four auctions this week totaling a record $126 billion. The two-year German government bond yield dropped 3 basis points to 0.96 percent. It earlier fell to the lowest since at least 1990 when Bloomberg began collecting the data.

Xstrata, BASF

Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent. Tenaris SA led declines in basic-resource shares, losing 6.5 percent in Italy. British American Tobacco Plc, Europe’s second- largest cigarette maker, dropped 2.1 percent after reporting net income that missed forecasts.

Declines were limited as BASF SE, the world’s biggest chemical company, gained 4.1 percent in Frankfurt after saying earnings will improve this year. Royal Bank of Scotland Group Plc rallied 6.5 percent on its narrower-than-estimated loss.

The MSCI Asia Pacific Index fell 0.8 percent. Toll Holdings Ltd. plunged 18 percent in Sydney after the air-freight and logistics company posted lower profit. Hynix Semiconductor Inc., the world’s second-largest computer-memory chipmaker, fell 2.3 percent in Seoul after Yonhap News reported that creditors will sell as much as 13 percent of the company this year.

U.S. Futures

The decline in U.S. futures indicated the S&P 500 may pare yesterday’s 1 percent gain. Orders for durable goods probably rose in January by the most in four months, indicating manufacturing is powering the U.S. recovery, economists said before a report from the Commerce Department due at 8:30 a.m. in Washington. Another report from the Labor Department may show initial claims for unemployment benefits fell last week.

Bernanke said slack labor markets and subdued inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy at “some point.”

The MSCI Emerging Markets Index fell for a third day, sliding 1 percent. Stocks in Kazakhstan, owner of 3.2 percent of the world’s oil reserves, dropped 3 percent. Russia’s Micex index declined 1.3 percent. South African bonds rallied, cutting yields to a five-month low on the benchmark 13.5 percent bond due September 2015, as smaller-than-expected power-price increases boosted the odds of a cut in interest rates. The rand weakened 1.2 percent against the dollar.

Copper declined 1.5 percent to $7,046 a metric ton on the London Metal Exchange as the dollar strengthened. Crude oil slumped 1.2 percent to $79.07 a barrel in New York.