Markets mauled on Europe debt debacle

The Greek storm continued to rattle world markets. Fears that Greece may not be the only eurozone economy in need of bailout cash sent world equity markets into a tailspin. Apart from stocks, commodities and emerging market currencies bore the brunt of the worldwide meltdown. Risk appetite tumbled and investors rushed to the safety of the dollar and bonds. The euro fell to a 14-month low on the dollar and one-year low on the yen, raising concerns over the currency’s reserve status. However, Spain's successful auction of a 5-year bond helped nudge the euro off 14-month lows. Spain sold 2.23 billion euros of five-year notes with a bid-to-cover ratio of 2.35. The maximum yield was 3.58%. Average yield was 3.532%. The yield was 2.816% when Spain sold €4.5bn of the same securities on March 4. Investors are demanding the biggest premium in yield to buy Spanish bonds rather than benchmark German bunds since the euro’s introduction in 1999. Spain's budget deficit is almost four times the European Union’s limit.

Public protests mounted in Greece, stoking concerns whether it will be able to attain the proposed cuts in budget deficit to win €110bn in aid from EU and IMF. Other members of ‘PIIGS’ like Spain and Portugal were staring at further downgrades. The idea of EU as a unified, cohesive economic bloc and euro as its common currency took further beating. To make the matters worse, China’s benchmark stock index slid to its lowest level in eight months as investors fret about government measures to cool the property market and a flood of new bank shares coming to market. Global mining shares were also hit by Australia's decision to slap resource tax on companies like BHP Billiton and Rio Tinto.

Pound sterling declined amid a strong possibility that the UK will see its first hung parliament since 1974. Investors are worried that Britain's budget deficit will remain high. Still, strategists at Lloyds TSB Corporate Markets said that sterling's weakness could have more to do with general risk aversion than worries about a hung parliament. The gap of about 8% in support between conservative David Cameron and Labour Party leader Gordon Brown in the latest polls is little changed from April 6, the day the premier called the election. Voting was to end at 10 p.m. on Thursday. Exit polls will give the first indications of the outcome but the final result won’t be known before Friday afternoon.