By Shiyin Chen
Stocks dropped, the euro weakened against the dollar and yen, and gold rallied to a six-week high as concern Italian Prime Minister Silvio Berlusconi will fail to muster a majority for a parliamentary vote tomorrow overshadowed Greece’s plans to form a unity government. The Swiss franc sank.
The MSCI All Country World Index slipped 0.4 percent and the Stoxx Europe 600 Index decreased 1 percent at 8:02 a.m. in London. Standard & Poor’s 500 Index futures dipped 1 percent. The 17-nation euro weakened 0.4 percent to $1.3727 and lost 0.5 percent to 107.34 yen. The franc slumped after the central bank signaled it is ready to act if the currency’s strength threatens Switzerland’s economy. Italian 10-year bond yields jumped to a euro-era record. Gold rose 0.8 percent.
Italy’s parliament will vote tomorrow on the 2010 budget report amid an unraveling of Berlusconi’s majority and a surge in the nation’s borrowing costs. Greek Prime Minister George Papandreou agreed to step down as a new government is created to secure international financing and avert a collapse of its economy. European finance chiefs will meet in Brussels today to work on details of a plan to bulk out the region’s bailout fund.
“It’s a short-term fix but even a new government needs to cut spending, increase taxes and get their house in order, so it’s not over yet,” said Kumar Palghat, managing director and founder of Kapstream Capital Pty, referring to Greece. “The next step is what happens in Italy. We’re really not out of the woods yet when it comes to Europe,” he said in a Bloomberg Television interview from Sydney.
About six shares retreated for every one that gained on the Stoxx 600. Italy’s benchmark FTSE MIB Index slumped 1.6 percent, Germany’s DAX Index lost 1 percent and France’s CAC 40 decreased 1.5 percent.
The euro weakened 2.5 percent last week on Papandreou’s decision to put the terms of the European Union’s rescue plan to a referendum. Two Berlusconi allies defected to the opposition last week and a third quit yesterday. Six others called for the Prime Minister to resign and seek a more broadly backed government in a letter to newspaper, Corriere della Sera.
Investor concern about Italy’s ability to cut the region’s second-biggest debt load sent the yield on the nation’s 10-year bond 20 basis points higher to 6.57 percent. The difference in yield, or spread, with benchmark German bunds also widened to a euro-era record.
“The market’s focus is shifting to Italy,” said Yunosuke Ikeda, an analyst of foreign-exchange research at Nomura Securities Co. “Yields on Italian bonds may continue to rise unless Berlusconi resigns. The euro is likely to inch lower amid the flow of rather bad news out of Europe.”
The Swiss franc weakened against all 16 major peers after central bank President Philipp Hildebrand said in an interview with NZZ am Sonntag newspaper that policy makers expect the currency to depreciate further. It depreciated 0.9 percent to 1.2305 per euro.
Concern that Europe’s sovereign-debt crisis will spread and global economic growth is slowing has buoyed demand for havens such as the franc and yen, spurring Swiss and Japanese policymakers to intervene in currency markets. The yen climbed 0.1 percent to 78.16 per dollar, after advancing to a post-World War II record on Oct. 31.
About four shares retreated for every three that gained on MSCI’s Asia Pacific Index, which sank 0.4 percent. Japan’s Nikkei 225 Stock Average slid 0.4 percent, Australia’s S&P/ASX 200 Index decreased 0.2 percent, while Hong Kong’s Hang Seng Index slid 0.9 percent. Markets in India, Singapore, Malaysia and the Philippines are closed for a holiday today.
Asics Corp. tumbled 11 percent in Tokyo after the sporting goods maker cut its full-year net-income forecast. Furukawa Electric Co. slumped 12 percent after the cable maker forecast a full-year loss.
Futures on the S&P 500 signal the U.S. stocks gauge may extend the Nov. 4 drop of 0.6 percent. Treasury 10-year yields fell two basis points to 2.02 percent, extending the four basis point decrease on Nov. 4. The U.S. Treasury Department plans to sell $72 billion of notes over three days this week, beginning with tomorrow’s sale of three-year debt.
Gold for immediate-delivery climbed as much as 1.1 percent to $1,773.35 an ounce before trading at $1,770.20. Oil retreated 0.3 percent to $93.97 a barrel in New York, reversing an earlier gain of as much as 0.7 percent. Three-month copper sank 0.9 percent to $7,800 a metric ton in London.
To contact the reporter on this story: Shiyin Chen in Singapore at email@example.com