* Stocks struggle on euro zone fears, US data
* Euro dips below $1.30 to hit 10-week low vs dollar
* Spanish, Italian yield spreads rise to lifetime highs
(Updates with European stock market's close)
By Manuela Badawy
NEW YORK, Nov 30 (Reuters) - The euro hit a 10-week low
against the dollar and stocks fell for a second day on Tuesday
on fears Europe's debt crisis is far from contained after
Ireland's financial rescue.
Gold rallied to a 2-1/2 week peak and U.S. government bond
prices rose as concern over sovereign debt levels in European
countries fueled buying of safe-haven assets. Oil slipped
closer to $85 a barrel as the dollar rose.
Manufacturing in the U.S. Midwest grew faster-than-expected
in November and U.S. consumer confidence gained, data showed.
Nevertheless, markets were dragged lower by deepening
uncertainty about the outlook for the euro zone.
Two days after Europe approved an 85 billion euro ($111.7
billion) emergency aid package for Ireland, worries about
contagion to Portugal and Spain persisted and the borrowing
costs of large countries like Italy and France shot higher.
"The European credit market is in panic mode because of
fears of insolvency (for some euro zone countries) and the euro
is trading off those credit yields," said Boris Schlossberg,
director of FX research at GFT in New York.
"For the euro to stabilize, credit yields need to stabilize
and for that to happen, we need action from the European
Central Bank. The Irish bailout was not enough and so the
pressure is building."
In tandem with euro weakness, the premium investors demand
to hold Spanish and Italian sovereign bonds over German bonds
hit their highest since the euro's launch, while some of the
region's "core" debt issuers, including France, were
pressured.
European stocks ended flat struggling to halt a sharp
three-week sell-off as investors continued to dump banking
shares on mounting fears of a domino effect in the euro zone
after Ireland's bailout.
The FTSEurofirst 300 <> index of top European shares
closed 0.03 percent higher at 1,069.52 points, but the index
suffered a 1.6 percent loss for November, its first monthly
loss since August.
U.S. stocks were weaker as the latest data on home prices
signaled rough recovery ahead and added to worries of the euro
debt crisis.
"We are starting to see many warning signs of global
contagion, including lower U.S. stock prices," said Zach Pandl,
economist at Nomura Securities International in New York.
The Dow Jones industrial average <> was down 32.77
points, or 0.30 percent, at 11,019.72. The Standard & Poor's
500 Index <.SPX> fell 5.51 points, or 0.46 percent, at
1,182.25, while the Nasdaq Composite Index <> dropped
25.19 points, or 1.00 percent, at 2,500.03.
U.S. consumer confidence rose in November to its highest in
five months and U.S. Midwest business activity grew faster than
expected, signs that the economy is moving
forward.[]
But the latest S&P/Case-Shiller home prices data
disappointed investors, as monthly prices fell more than
expected in September, and prices from a year earlier rose more
slowly than forecast. []
MSCI's all country world index <.MIWD00000PUS> was down
0.43 percent.
Markets are already discounting an eventual rescue of
Portugal although the government in Lisbon denies the country
needs outside aid, much as Ireland did before its bailout.
While a Portuguese rescue would be manageable, assistance
for its larger neighbor, Spain, would sorely test EU resources,
raise deeper questions about the integrity of the 12-year old
currency area and possibly spread contagion beyond Europe.
EURO UNCERTAINTY
The euro <EUR=> fell below the critical $1.30 level to
$1.2977, its lowest since mid-September, before bouncing back
to $1.3027 amid fear of regional contagion and uncertainty over
the currency's future.
With the spotlight on the euro, the dollar continued to
gain, hitting a more than two-month high at 81.444 against a
currency basket <.DXY>, before backing to 81.119, lifted by
safe-haven flows and recent evidence of an improving U.S.
economy.
U.S. Treasury prices rose, adding to the previous day's
gains, as investors turned to government debt as a safe haven
from the recent flare-up in volatility.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
15/32, with the yield at 2.7694 percent. The 2-year U.S.
Treasury note <US2YT=RR> was up 3/32, with the yield at 0.4607
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
34/32, with the yield at 4.0809 percent.
Spot gold <XAU=> rose $23.11, or 1.69 percent, to $1,389.50
an ounce, a 2-1/2 week-high as investors bought the metal as a
safe store of value.
U.S. crude oil futures <CLc1> fell 58 cents, or 0.68
percent, to $85.15 per barrel.
(Additional reporting by Rodrigo Campos, Gertrude
Chavez-Dreyfuss in New York and Elizabeth Fullerton and Tamawa
Desai in London; Editing by Kenneth Barry)
