Euro falls to four-year low on debt crisis woes Wednesday, 02 June 2010 03:08

NEW YORK: The euro fell to a four-year low yesterday on worries the euro zone’s debt crisis is spreading to its banking system, and the price of US Treasuries and gold rose as investors sought safe havens.

US stocks bounced between negative and positive territory, hurt by a warning from the European Central Bank on the region’s public finances but buttressed by better-than-expected US construction and manufacturing data.

The European Central Bank warned on Monday that euro zone banks could face another ¤195bn ($239bn) in a “second wave” of potential loan losses over the next 19 months due to the financial crisis.

US and UK financial markets were closed on Monday for national holidays.

“The ECB warning on Monday set the stage for euro selling,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. “Markets remain jittery and overall risk sentiment is bearish,” he said.

After May marked the most volatile month of trading since the aftermath of Lehman Brothers’ collapse in late 2008, investors focused on concerns that growth would slow in a euro zone struggling to rein in debt, in turn reducing demand for exports from economies like China, slowing production there.

Concerns over another crisis in the banking sector were compounded by data signaling slowing manufacturing growth in Europe and China. In the United States, a revival in the factory sector due to overseas demand and inventory restocking has helped to lead an economic rebound over the past three quarters.

“Treasuries and the dollar remain the safe haven because the euro zone problem will not go away any time soon,” said Frank Cholly Sr, a senior market strategist at Lind Waldock in Chicago.

European stocks eked out a small gain, reversing losses that had dragged the pan-European FTSEurofirst 300 down nearly two percent. The strong US data helped to ease investors’ worries about the global economic recovery.

BP tumbled 13.1 percent after its attempt to plug the worst oil spill in US history in the Gulf of Mexico failed.

US government bond prices rose with the benchmark 10-year US Treasury note up 4/32, with the yield at 3.2867 percent. The 2-year US Treasury note was down 1/32, with the yield at 0.7816 percent. The 30-year US Treasury bond was up 10/32, with the yield at 4.198 percent.

The Institute for Supply Management said US manufacturing sector expanded for a tenth straight month but at a slower pace than in April, which was the highest in almost six years. Meanwhile employment rose to its best level in six years, according to an industry report.

The Dow Jones industrial average was up 40.58 points, or 0.40 percent, at 10,177.21. The Standard &  Poor’s 500 Index was down 1.30 points, or 0.12 percent, at 1,088.11. The Nasdaq Composite Index was up 1.08 points, or 0.05 percent, at 2,258.12.

Stocks were helped by showing the US manufacturing expanded in for a tenth straight month failed to quell fears of a slowing economy.

The Commerce Department said construction spending rose 2.7 percent, and investment in private construction surged 2.9 percent, the largest increase since July 2004. Also, the Institute for Supply Management’s manufacturing index expanded more than expected in May.

Energy stocks were among the worst performers on Wall Street, including US-listed shares of BP Plc, which tumbled 11.6 percent to $37.95.

Halliburton Co slumped 11.8 percent to $21.91 as Goldman Sachs removed the oilfield services company from its conviction buy list, citing short-term concerns resulting from the BP oil spill. The S P Energy index fell 1.6 percent.

“The BP news isn’t helping markets today. It’s going to weigh on oil companies watch and keep things in a state of flux in the energy sector for a while,” said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

reuters

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