GLOBAL MARKETS-Stocks, euro slip on euro zone concerns

Published 09/23/2010, 06:17 AM
Updated 09/23/2010, 06:20 AM
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* MSCI world equity index down 0.4 percent at 300.94

* Euro zone PMI, Irish concerns fuel concerns

* Euro lower; dollar rises from six-month trough

By Natsuko Waki

LONDON, Sept 23 (Reuters) - World stocks slipped on Thursday while the euro fell broadly as a survey showed a slowdown in growth of the euro zone services and manufacturing sectors and concerns intensified about the region's banks.

Investors demanded a higher premium to hold Irish government bonds than benchmark German bunds. Investors grew nervous about possible restructuring of riskier subordinated debt issued by Anglo Irish Bank as government guarantees for such instrument expire next week.

The Markit survey showed the euro zone services purchasing managers index fell to its lowest reading since February while manufacturing PMI fell to its slowest level since January.

"The bottom line is that growth momentum continues to moderate," said Marco Valli, economist at UniCredit. MSCI world equity index fell 0.4 percent, off its four-month high hit on Wednesday. The Thomson Reuters global stock index lost half a percent.

The FTSEurofirst 300 index dropped 0.7 percent.

Emerging stocks fell 0.15 percent. Markets in Japan, China, Hong Kong and South Korea were closed for a holiday.

The bund futures rose 61 ticks. The 10-year Irish/German government bond yield spread widened by 21 basis points on the day to 438 bps, a euro lifetime high.

"Spain, Portugal, Greece, Ireland are under significant pressure in the coming months to put forward retrenchment measures in their budgets for 2011," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.

The cost of insuring five-year Irish government debt against default rose to 500 bps from 460 bps late on Wednesday.

The dollar rose 0.3 percent against a basket of major currencies having hit a six-month low on Wednesday.

The euro fell against the dollar and sterling.

The dollar had come under pressure after the Federal Reserve promised on Wednesday to ease monetary policy further if needed to support the economy.

The prospect of more money printing -- or a second round of quantitative easing -- weighed on the dollar, while bolstering emerging markets and dollar-priced commodities.

"The FOMC's logic appears to have shifted from 'No QE2, unless economy deteriorates' to 'QE2, unless economy improves significantly'," said Ciaran O'Hagan, strategist at Societe Generale.

U.S. crude oil fell one percent to $73.97, while gold stood at $1,291.35 an ounce, near a record high set on Wednesday. As a hard asset and also a currency, gold tends to benefit during times of loose monetary policy because it cannot be devalued by money printing.

(Editing by Toby Chopra)

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