Reuters: US Dollar Report: GLOBAL MARKETS-Shares fall on Cyprus deal, but off day's lows

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GLOBAL MARKETS-Shares fall on Cyprus deal, but off day's lows Mar 18th 2013, 15:11 Mon Mar 18, 2013 11:11am EDT * European shares tumble, but pare initial losses * Euro recovers after drop below $1.29 on Cyprus deal * Spanish and Italian bonds yields jump * Safe-haven gold jumps above $1,600 By Ryan Vlastelica NEW YORK, March 18 (Reuters) - Global stock markets fell on Monday as concerns over European sovereign debt returned to the forefront after the euro zone's decision on partially funding a bailout of Cyprus by taxing bank deposits. The move hit confidence in the European banking sector, sparking concerns about any impact on the region's economic growth and whether it could spread to other areas. U.S. equities investors took the opportunity to lock in profits after an extended rally last week. The euro and bonds of troubled European sovereign debtors also fell, as did U.S. banking shares, though markets rebounded off the session's lows on hopes that the tactic would not be used elsewhere. The bloc struck a deal on Saturday to give Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings - including from the European Central Bank - and imposed a levy that would cost those with cash in the island's banks between 6.75 and 9.9 percent of their money. Cyprus' parliament put off a vote on the measure, which has shaken depositors' confidence in banks across the continent, until Tuesday. With public anger at the deal widespread, the government said it was looking to reduce the losses for small savers. "This is disturbing because it creates uncertainty, but the euro zone has gone through much worse than this, and this is a bit of an excuse for the market to sell," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. The deal staved off a default, which would have undermined the promise that last year's Greek debt writedown was a one-off. But the move to hit depositors takes the euro zone crisis into unprecedented territory. The initial response of investors was unambiguous. European shares followed Asian indexes lower and the euro fell to a three-month low, while safe-haven assets such as gold and German and U.S. government bonds jumped. Italian and Spanish bond yields both rose sharply, reflecting fears about the weakness of the two euro zone economies and the size of their debt burdens. European shares fell 0.5 percent, having at one point been down as much as 1.4 percent. It was the worst session for European equities since last month's inconclusive Italian elections. London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 were down 0.6 percent, 1 percent and 1.2 percent respectively, leaving MSCI's global share index down 1.02 percent. In the United States, the Dow Jones industrial average was down 40.51 points, or 0.28 percent, at 14,473.60. The Standard & Poor's 500 Index was down 8.03 points, or 0.51 percent, at 1,552.67. The Nasdaq Composite Index was down 16.12 points, or 0.50 percent, at 3,232.95. Euro zone bank shares bore the brunt of the sell-off, falling 3.5 percent. U.S.-listed shares of Deutsche Bank fell 3.8 percent to $42.94 while Barclays was off 3.5 percent to $18.55. Bank of America fell 1 percent to $12.44 while Morgan Stanley fell 3.7 percent to $22.72. CENTRAL BANK SUPPORT Some in the markets were drawing support from a view that safety measures put in place at the European Central Bank should contain the fallout from Cyprus. In addition, this week three of the world's biggest central banks are expected to signal they plan to keep monetary policy loose for the foreseeable future. "Clearly this (Cyprus deal) is a negative development for European assets, but in the terms of contagion, we think it is quite limited," said Guillermo Felices, head euro asset allocation at Barclays in London. Other analysts noted shares are trading at historically lofty levels, and therefore ripe for a pullback. Efforts by policymakers to revise the Cyprus plan to spare small savers from losses also supported the market. The euro staged a slight recovery after dropping to a three-month low of $1.2882 in Asian trading. It was down 1 percent overall on the day but was flat for the European session at $1.2950. The dollar, which investors often seek when tensions in Europe rise, gained 0.4 percent against a basket of currencies. "Euro zone politicians will be at pains today to manage down the danger of contagion to other markets. The euro will find a little bit of support from that but markets will remain jittery," said Jane Foley, senior currency strategist at Rabobank. PERIPHERAL VISION The euro zone's bond market has been the main lightening rod of its troubles over the last three-years. While Italian and Spanish bond yields jumped, the widespread anxiety drove up German government bonds, the traditional favorite of risk-adverse European investors, and boosted the cost of insuring against a sovereign default in the euro zone's southern rim. The benchmark 10-year U.S. Treasury note was up 13/32, the yield at 1.9442 percent. In commodity markets, U.S. crude and Brent oil both tumbled, with Brent futures down 0.6 percent at $109.22 per barrel and U.S. oil off 0.3 percent to $93.18. Gold, another safe-haven asset, registered its biggest jump in a month, rising to $1,608.30, its highest level since late February. Link this Share this Digg this Email Reprints

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