The euro was not far from a two-year low against the dollar and a
near 12-year low against the yen, as the single currency was undermined by
Moody's Investors Service changing its ratings outlook to negative for
Aaa-rated Germany, the Netherlands and Luxembourg amid Europe's ongoing debt
crisis.
With market
sentiment so fragile, the HSBC China July flash PMI due to be released at 22:30
EDT (0230 GMT) could set the tone for risk appetite as investors look for signs
of a stabilisation in the slowdown in the world's second-largest economy. Euro
zone's manufacturing data is also due later on Tuesday.
Fears about
Spain possibly needing a fully-fledged bailout, intensified investor flight to
safety and pushed the 10-year U.S. Treasury yield down to a record low 1.3977
percent, while five- and 10-year German government bond yields also set new
lows on Monday.
In contrast,
Spanish 10-year borrowing costs surged to a euro-era high above 7.5 percent on
Monday.
Andrew
Wilkinson, chief economic strategist at Miller Tabak & Co in New York, said
the flattening of the Spanish yield curve reflected how investors have grown
increasingly concerned about perceived risks facing Spain.
"Rising
yields are in turn adding to a sense of crisis: If the regions ask for cash,
how will the government fund itself? The brave Spanish matador appears to be
pinned to the perimeter fence by the angry bull," Wilkinson said.
Spain faces
a crucial litmus test later on Tuesday with its debt sale of 3 billion euros in
3- and 6-month bills.
MSCI's
broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was steady,
after tumbling 2.4 percent on Monday for its biggest one-day drop in about two
months, while Japan's Nikkei stock average .N225 opened down 0.1 percent, after
slumping to a six-week low on Monday. .T
European
stocks sank on Monday on Spanish jitters but a ban on short selling unveiled by
the Italian and Spanish market authorities to discourage speculative trading
helped limit the damage on local stocks.
The euro was
at $1.2123, off a 25-month low of $1.2067 hit on Monday, and stood at 94.90
yen, barely above its lowest since November 2000 of around 94.23 yen marked on
Monday.
Profit
taking spared the euro from hitting record lows against the Australian and New
Zealand dollars on Tuesday.
Hong Kong's
stock market will delay its opening on Tuesday morning due to Typhoon Vicente.
GREECE
ENTERS AGAIN
Greece,
which only last month averted a crisis by having pro-bailout parties win an
election, is scheduled on Tuesday to meet its troika of creditors -- the European
Union, European Central Bank and the International Monetary Fund -- to
renegotiate rescue payments which are crucial to keeping indebted Athens afloat
and within the euro zone.
The
uncertainty over whether Greece could convince creditors to secure the funds
compounded fears Madrid's funding crisis could accelerate after Spain's central
bank said on Monday the economy sank deeper into recession in the second
quarter.
Various
gauges for stress on Monday reflected mounting market nervousness about financial
contagion from the fiscal woes in Spain and Greece.
The CBOE
Volatility index .VIX, which measures expected volatility in the Standard &
Poor's 500 index finance/markets/index?symbol=us%21spx">.SPX over the
next 30 days, jumped 14.4 percent to close at 18.62.
Risk
premiums in the dollar funding market also rose, widening the spread between
the two-year U.S. interest swap rate and two-year Treasuries, as well as the
gap between the London interbank offered rate and the overnight indexed swap
rate for three-month dollars.
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