Additional European Sovereign Debt Concerns

from Bloomberg:
Stocks and U.S. index futures fell, the euro weakened while Treasuries and bunds rallied on concern Europe’s debt crisis may worsen. Oil and copper retreated.
The MSCI World Index dropped 0.6 percent at 7:27 a.m. in New York. Futures on the Standard & Poor’s 500 Index lost 0.7 percent after U.S. markets were closed yesterday for the Labor Day holiday. The euro depreciated the most in a week against the yen. The yield on 10-year Treasuries slipped 4 basis points to 2.66 percent. The gap between German and Irish bond yields climbed to a record high, while German-Greek yield spread increased to the widest since May.
“Banks still face problems in regards to their capital ratios,” said Michael Koehler, head of strategy at Landesbank Baden-Wuerttemberg in Mainz, Germany. “Investors will keep worrying about a possible double dip in the next few weeks,” referring to a renewed recession.
Banks led stocks lower on concern they’ll require more capital to compensate for holdings of bonds in Europe’s weakest economies. Germany’s banking association said yesterday that the nation’s lenders need to raise $135 billion and Pacific Investment Management Co. said Greece still faces “substantial” default risk. Policy makers in Japan and Australia cited concerns over the outlook for the U.S. in keeping interest rates on hold today.
More than seven shares fell for every one that gained in the Stoxx Europe 600 Index, which lost 0.8 percent after reaching a four-week high yesterday. A government report showed German factory orders unexpectedly fell in July as demand in the euro region weakened, indicating the recovery in Europe’s largest economy is losing momentum. The MSCI Asia Pacific Index slid 0.2 percent.
Santander, Barclays
Banco Santander SA slid 2.3 percent and BNP Paribas SA lost 2.7 percent. Barclays Plc sank 3.6 percent as Britain’s third- largest bank named President Robert Diamond as chief executive officer, succeeding John Varley. The cost of insuring financial- company bonds against default climbed by the most in a month, with the Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rising 8.5 basis points to 138, according to JPMorgan Chase & Co.
Rio Tinto Group led basic-resources stocks lower, losing 2.6 percent, as Australian Prime Minister Julia Gillard clinched a deal to keep power. Gillard’s Labor government has proposed a tax on mining profits.
The decline in U.S. futures indicated the S&P 500 may pare last week’s 3.8 percent rally. President Barack Obama is planning to increase tax relief for businesses and federal spending on the nation’s transportation system to bolster an economy that’s losing jobs heading into the November congressional elections. The unemployment rate may approach 10 percent in coming months, according to economists at BofA Merrill Lynch Global Research and Morgan Stanley.
Greek, German Bonds
The German bund yield dropped 7 basis points to 2.27 percent. Greek bonds plunged, pushing the yield on the 10-year security up 28 basis points relative to bunds to 942 basis points, the most since the European Union and International Monetary Fund crafted a bailout package in May.
The Irish-German 10-year yield spread increased 37 basis points to 380 basis points, the highest since Bloomberg records began in 1991. The Portuguese-German spread was 352 basis points, from 333 basis points yesterday.
The yen rose against all 16 of its major peers, strengthening 1.3 percent to 106.99 versus the euro and 0.4 percent to 83.90 per dollar. The euro weakened 1 percent to $1.2751. Australia’s dollar dropped 0.6 percent against the U.S. currency.
Copper, Oil
Copper for delivery in three months fell 2.1 percent on the London Metal Exchange, the biggest drop since July 16. The S&P GSCI index of 24 commodities lost 0.8 percent, the first decline since Aug. 31. Corn was down 1.3 percent. Crude for October delivery retreated 2.3 percent to $72.90 a barrel on the New York Mercantile Exchange. Yesterday’s transactions will be booked with today’s for settlement purposes as there was no floor trading because of the Labor Day holiday. Brent crude for October settlement on the London-based ICE Futures Europe Exchange dropped 1.5 percent to $75.71 a barrel.
The MSCI Emerging Markets Index slipped 0.5 percent, the first decline in five days. OTP Bank Nyrt., Hungary’s largest lender, led the BUX index 1.5 percent lower. Russia’s Micex index lost 1.3 percent, dragged down by energy and mining companies.