* Euro falls to four-month low before reversing losses
* Portuguese 10-year yields above 7 pct on debt worries
* Debt concerns overshadow earnings hopes, stocks fall
(Recasts; updates with U.S. markets close)
By Walter Brandimarte and Jennifer Ablan
NEW YORK, Jan 10 (Reuters) - World stocks fell on Monday on
fears Portugal may be the next euro-zone member forced to seek
a bailout, and the euro was seen remaining under pressure even
as it managed to recover after hitting a four-month low against
the dollar.
Prices of U.S. Treasury debt and gold rose as investors
sought safety on a resurgence in worries about European debt
ahead of key bond auctions by Portugal, Italy and Spain this
week.
The euro's rebound was partially fueled by gains against
the Swiss franc, on speculation the Swiss government may act to
rein in currency gains. Talk of further bond purchases by the
European Central Bank also took some pressure off the market.
Stocks fell in the United States, Europe and most emerging
markets as the fears about European debt levels overshadowed
news of multibillion-dollar mergers and acquisitions. Asian
stocks were also poised to open lower, with front-month Nikkei
225 futures traded in Chicago <NKH1> falling 25 points to
10,480.
"We see a further escalation in the European debt crisis,
and a substantially weaker euro," said Stephen Jen, managing
director of macroeconomics and currencies at BlueGold Capital
Management LLP in London.
"There is no silver bullet because the underlying problems
are 'knotted.'"
The euro fell as low as $1.2860 <EUR=> on trading platform
EBS, a level not seen since mid-September, but recovered later
to trade at $1.2949, up 0.26 percent on the day. It remains
down more than 3 percent against the dollar so far this year.
European debt concerns rose again during the weekend after
Reuters quoted a senior euro zone official as saying Germany
and France were increasing pressure on Portugal to seek
financial help from the European Union and International
Monetary Fund. For details, see [].
The report sent yields on Portuguese 10-year debt soaring
above 7 percent to their highest levels since the euro's
creation in 1999. Portuguese yields recovered some ground later
on Monday on talk of ECB bond buying, but remained above 7
percent, which is seen as an unsustainable cost of borrowing.
Portugal denied it was under pressure from Berlin and Paris
to seek a bailout. []
"It highlights the problems of whether the bailout fund
will be sufficient to meet everybody's expectations," said Mark
Bon, fund manager at Canada Life in London, said of the reports
on Portugal.
WORLD STOCKS WEAKER
On equity markets, the debt worries offset expectations of
strong corporate earnings at the beginning of the U.S.
quarterly earnings season. Wall Street, however, managed to
shake off most of the worries about Europe as the trading day
progressed.
Merger and acquisition deals provided a strong positive
note and helped cap losses. Duke Energy Corp <DUK.N> agreed to
buy Progress Energy Inc for $13.7 billion in stock, while
DuPont <PGN.N> planned to buy Danisco, a Danish food ingredient
firm, for $5.8 billion. [] and []
The Dow Jones industrial average <> lost 37.31 points,
or 0.32 percent, to 11,637.45, while The Standard & Poor's 500
Index <.SPX> edged down 1.75 points, or 0.14 percent, to
1,269.75. The Nasdaq Composite Index <> gained 4.63
points, or 0.17 percent, to 2,707.80.
World stocks declined 0.52 percent according to the
benchmark MSCI All-Country World Index <.MIWD00000PUS>.
In Europe, the FTSEurofirst 300 index <FTEU3> of top shares
closed down 0.97 percent, after rising 2 percent last week.
The heavyweight banking sector, which has exposure to
sovereign debt in peripheral euro zone countries, was a major
loser. BNP Paribas <BNPP.PA>, Banco Santander<SAN.MC>, Intesa
SanPaolo <ISP.MI>, Societe Generale <SOGN.PA> and UniCredit
<CRDI.MI> fell between 2.7 and 5.7 percent. Greek banks
<.FTATBNK> fell 6.6 percent.
Shares in Portugal's largest listed bank Millennium bcp
<BCP.LS> fell 3.15 percent while other Portuguese banks also
fell.
Euro zone credit concerns benefited government bonds,
sending U.S. Treasury debt prices higher.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
9/32 in price, sending its yield down to 3.289 percent. The
30-year bond <US30YT=RR> gained 12/32 in price, with the yield
at 4.4621 percent.
Gold prices <XAU=> rose 0.44 percent to $1,374.60 on a
renewed safe-haven bid.
U.S. crude oil prices <2CLc1> settled $1.22 higher, or 1.39
percent, to $89.25 a barrel, after a leak shut an Alaskan
pipeline that carries 12 percent of U.S. crude output.
(Additional reporting by Wanfeng Zhou, Nick Olivari Karen
Brettell and Rodrigo Campos; Editing by Leslie Adler)
