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GLOBAL MARKETS-Europe worries drive US bond yields to 60-yr low
May 30, 2012 / 6:48 PM / in 6 years

GLOBAL MARKETS-Europe worries drive US bond yields to 60-yr low

* All 3 major Wall Street index down about 1 pct

* European stocks, global shares down 1.5 pct

* Euro falls below $1.24, near two-year low

* Brent crude oil dives 3 pct to below $105

By Barani Krishnan

NEW YORK, May 30 (Reuters) - Benchmark U.S. Treasury yields fell to their lowest levels in at least 60 years Wednesday and stocks and commodities sold off as fears over the deepening euro zone debt crisis gripped investors.

The euro fell below $1.24, near a two-year low, as Italian borrowing costs soared and concerns mounted over Spain’s banking sector. Crude oil prices fell 3 percent.

In equities markets, the three major indexes on Wall Street retreated from their lows but were still down about 1 percent. European and global shares fell more than 1 percent.

Spain’s stock market hit a nine-year low as the country’s borrowing costs rose to near the 7 percent level that had forced other euro zone nations to seek bailouts.

In Greece, the outcome of an election next month that may decide whether it remains in the euro was still uncertain as polls showed parties for and against a bailout neck-and-neck.

“The politics in Greece is combustible but the systemic importance of Spain is far greater,” said Stephen Wood, chief market strategist with Russell Investments in New York, which oversees $141 billion. “This is an ongoing drama that will not go away any time soon.”

Around 2:30 p.m. EDT, the Dow Jones industrial average was down 140.89 points, or 1.12 percent, at 12,439.80. The Standard & Poor’s 500 Index was down 16.35 points, or 1.23 percent, at 1,316.07. The Nasdaq Composite Index was down 27.26 points, or 0.95 percent, at 2,843.73.

The benchmark 10-year U.S. Treasury note was up 35/32, its yield at 1.6288 percent -- the lowest since the 1940s.

European stocks, tracked by the FTSEurofirst 300 index , closed 1.5 percent lower at 975.74, having traded 105 percent of its 90-day volume average. The blue-chip Euro STOXX 50, which fell 2 percent, traded 70 percent of its volume average.

Spain’s Ibex 35 index fell 2.8 percent, its lowest since 2003.

MSCI’s all-country world equity index shed 1.65 percent.

The yield on Spain’s 10-year benchmark was at 6.675 percent. Italy’s funding costs rose sharply at a bond sale, with 10-year yields topping 6 percent for the first time since January.

The euro neared a two-year low as Spain’s central bank governor said the government would miss its deficit target this year.

“Uncertainty remains high and headline risk is likely the key driver,” said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. “The fear is that we only have Band-Aid solutions, and we still don’t have a medium-term plan for Europe.”

The European Commission threw Spain two potential lifelines, offering more time to reduce its budget deficit and offering direct aid from a euro zone rescue fund to recapitalize distressed banks.

The euro was last down 0.8 percent at $1.2400 after touching $1.2384, its lowest level since early July 2010. It also fell against the safe-haven yen, losing nearly 1.4 percent to trade near 97.90 yen, a four-month low.

The euro’s weakness underpinned the dollar index, which measures the dollar against a basket of major currencies. The index rose above 82.923, its highest since September 2010.

The rise in the dollar, as well as fears over the European debt crisis, dragged down commodities. Copper and platinum both sank to 4-1/2-month lows as investors piled into safe havens.

“As we’ve seen during other periods of extreme risk aversion, investors go into Treasury bonds, which are yielding record lows, or they stay in cash. It’s preservation of capital,” said analyst Robin Bhar at Societe Generale in London.

Oil lost about $3 a barrel. London’s benchmark Brent crude hovered at around $103, breaching the $105 support level. U.S. crude in New York traded below $88, or under the $90 support.

Gold, which serves as an alternative play to the dollar, was down 0.8 percent at below $1,568 an ounce.

Arabica coffee closed at a 21-month low while U.S. cotton was headed to finish at a 27-month bottom.

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