*Euro down 3.5 percent against the dollar so far in 2011
*Portugal, Spain and Italy to begin raising 2011 funding
*Sustainable yields crucial if Portugal to avoid bailout
(Updates with opening of U.S. markets, adds to byline,
dateline)
By Jennifer Ablan and Jeremy Gaunt
NEW YORK/LONDON, Jan 10 (Reuters) - Speculation that
Portugal may be the next euro zone member forced to seek a
bailout knocked the euro to a four-month low against the dollar
on Monday and added selling pressure on world stocks.
On Wall Street, the European debt worries overshadowed news
of multibillion-dollar business deals, causing major stock
indices to fall.
World stocks as measured by MSCI <.MIWD00000PUS> lost 0.6
percent, erasing the year's earlier gains.
The euro fell to lows not seen since mid-September,
slipping to $1.2860 <EUR=> on trading platform EBS, recovering
to $1.2903. The euro is down 3.5 percent against the dollar so
far this year.
The euro's drop was triggered by a Reuters report on
Sunday, citing a senior euro zone source who said pressure was
growing on Portugal from Germany and France to seek financial
help from the European Union and International Monetary Fund to
help prevent a debt crisis from spreading. For details, see
[]. The report also sent yields on Portuguese
10-year debt soaring above 7 percent to their highest levels
since the euro's creation in 1999.
Portugal denied a German magazine report that it was under
pressure from Berlin and Paris to seek a bailout.
[]
Concern about euro zone debt has returned after a brief
hiatus with a series of auctions of Portuguese, Spanish and
Italian debt due in the coming week. []
In the entire euro zone 21.25 billion euros worth of bonds
will be on offer, with additional debt on sale from triple-A
rated Germany and the Netherlands.
"I think overall the path of least resistance is going to
be the downside for the euro," said Andrew Robinson, currency
market strategist for Saxo Capital Markets in Singapore.
Yields on peripheral euro zone bonds generally rose but
pressure eased as traders cited bond buying by the European
Central Bank. []
"There is a lot of concern among politicians over the
crisis, and this only fuels the market's concerns," said Niels
From, chief analyst at Nordea in Copenhagen.
WORLD STOCKS WEAKER
Debt concerns weighed on global equity markets where
investors were digesting Friday's disappointing U.S. payrolls
report and preparing for the start of the quarterly U.S.
earnings season.
Euro zone credit concerns benefited government bonds,
sending U.S. Treasury debt prices higher.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
7/32, with the yield at 3.30 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 1/32, with the yield at 0.58 percent.
The 30-year U.S. Treasury bond <US30YT=RR> was up 5/32, with
the yield at 4.47 percent.
In stocks, the Dow Jones industrial average <> fell
73.11 points, or 0.63 percent, at 11,601.65. The Standard &
Poor's 500 Index <.SPX> lost 6.50 points, or 0.51 percent, at
1,265.00. The Nasdaq Composite Index <> shed 16.30 points,
or 0.60 percent, at 2,686.87.
Among Monday's merger deals, Duke Energy Corp <DUK.N>
agreed to buy Progress Energy Inc <PGN.N> for $13.7 billion in
stock, and DuPont <DD.N> plans to buy Danisco <DCO.CO>, a
Danish food ingredient firm, for $5.8 billion. []
and []
Other equities indices also were under selling pressure.
Emerging markets <.MSCIEF> fell more than 1 percent and the
FTSEurofirst 300 <> was down 0.84 percent. Japanese
markets were closed for a holiday.
"The debt crisis is still a feature in the background. We
did see some disappointment as far as Portugal is concerned in
terms of the rates they are paying. Some other countries will
also be approaching the debt market in the near term," said
Keith Bowman, equity analyst at Hargreaves Lansdown.
The quarterly results season kicks off in the United States
after the market's close on Monday with aluminum company Alcoa
<AA.N>.
(Additional reporting by William James and Atul Prakash;
Editing by Kenneth Barry)
