Euro, Asia Stocks Fall as Gold Climbs

By Lynn Thomasson - Sep 19, 2011 9:43 AM GMT+0700

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U.S. dollar bills and euro notes are seen arranged for a photograph in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

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Sept. 19 (Bloomberg) -- Andrew Pease, a Sydney-based senior investment strategist for the Asia-Pacific region at Russell Investment Group, talks about regional financial markets and economies. Pease, speaking with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses Europe's sovereign debt crisis and the U.S. economy. (Source: Bloomberg)

The euro weakened against the dollar for a second day, while Asian stocks and commodities dropped after European policymakers failed to introduce a plan to stem the region’s debt crisis. Gold rose and the dollar strengthened against most of its major counterparts.

The euro declined 1 percent to 1.3653 per dollar as of 10:42 a.m. in Hong Kong. The MSCI Asia Pacific Excluding Japan Index fell 1.5 percent, while futures on the Standard & Poor’s 500 Index sank 1.6 percent after the index surged 5.4 percent last week. Gold climbed 0.4 percent to $1,820.37. Copper tumbled as much as 2 percent and oil retreated 1.3 percent. The Dollar Index increased 0.7 percent. Japanese markets were shut for a public holiday.

Finance chiefs from the euro region said last week that the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. German economic reports this week are forecast to show a decline in investor confidence and a slowdown in manufacturing in Europe’s largest economy.

“People were hoping for some positive interaction between European finance ministers and Geithner resulting in a firm, positive response to Europe’s debt crisis,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Instead, what they got was just greater uncertainty, and nothing was resolved.”

Greece’s ability to avoid default hangs in the balance this week as international monitors will assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. European Union and International Monetary Fund inspectors will speak with Finance Minister Evangelos Venizelos today to judge whether the government is eligible for its next aid payment due next month.

Aussie, Kiwi

The euro slid against 14 of its 16 major peers. Australia’s dollar fell 1.2 percent to $1.0236. New Zealand’s currency, nicknamed the kiwi, slid 0.7 percent to 82.37 U.S. cents.

“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if they don’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

S&P 500 futures dropped to 1,192.10, indicating the U.S. equity benchmark will fall after posting the third-biggest weekly gain since 2009. President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.

China Property Prices

Hong Kong’s Hang Seng Index tumbled 2.2 percent, the first decline in four days. The Shanghai Stock Exchange Composite Index slumped 1.3 percent. Home prices rose across China last month, defying government curbs and prompting speculation that Beijing may plan more measures to tame asset-price inflation.

South Korea’s Kospi Index lost 0.9 percent. RNL Bio Co., a manufacturer of biomedical products, jumped 8.1 percent. The South Korean government plans to invest about 100 billion won in stem cell-related research next year, President Lee Myung Bak said in a biweekly radio address today, according to the presidential office’s website.

Copper for three-month delivery dropped to as low as $8,526.5 a metric ton. The four-day strike at Freeport-McMoRan Copper & Gold Inc.’s copper mine in Peru has ended, a union official said. Nickel lost 1.2 percent to $21,250 a ton and aluminum slipped 0.6 percent to $2,366 a ton.

Oil, Treasuries

Oil fell to the lowest in a week in New York on speculation that fuel demand will falter amid signs of weaker economic growth in Europe and the U.S., the world’s largest consumer of crude. Futures dropped as much as 1.3 percent to $86.81 a barrel, extending a 1.6 percent decline on Sept. 16.

The yield on the 10-year Treasury note lost 3 basis points to 2.05 percent. Policymakers at the U.S. Federal Reserve will gather tomorrow in Washington for a two-day meeting. Some economists anticipate additional stimulus aimed at reducing long-term borrowing costs and boosting growth.

Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce a plan this week to buy longer- term debt to spur the faltering economy. The 20 primary dealers held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, the most since December and up from a $75 billion bet against the debt on May 6, Fed data show.

The cost of protecting Asia-Pacific corporate and sovereign bonds from default increased, with the Markit iTraxx Australia index rising 8.5 basis points to 180.5 basis points, according to Deutsche Bank AG. That’s the first increase in five trading days and puts the index on course for its biggest daily rise since Sept. 12, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 7 basis points to 169.5 basis points as of 9:08 a.m. in Hong Kong, Deutsche Bank prices show.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net