Soverign Debt Crisis Spreads

This from Bloomberg:


Greece's Junk Contagion Pressures EU to Broaden Bailout After Market Rou


Stocks Drop as Sovereign-Debt Crisis Spreads; Greek Bonds Slump
Share Business
By David Merritt

April 28 (Bloomberg) -- Stocks extended a global slide and commodities dropped, while yields on Greek two-year notes jumped to a record 26 percent and the euro traded near a one-year low against the dollar as sovereign-debt concern spread.

The MSCI World Index of 23 developed nations’ stocks fell 0.8 percent at 12:36 p.m. in London. Greece’s ASE Index rebounded 1.8 percent as the securities regulator banned short- selling on the Athens bourse. The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds surpassed 8 percentage points. Nickel and copper fell. Futures on the Standard & Poor’s 500 Index rose 0.3 percent.

Stocks, commodities and the euro tumbled, while Treasuries rallied yesterday when S&P lowered Greece’s debt rating to junk and Portugal by two steps. European Central Bank President Jean- Claude Trichet and International Monetary Fund Director Dominique Strauss-Kahn will meet German politicians in Berlin today to promote a financial rescue plan. The euro rebounded amid speculation that the IMF will provide more aid to Greece.

“The danger is that the authorities lose control of the situation and that sovereign yields rise to levels that make a bailout for Greece even more difficult,” Gary Jenkins, a strategist at Evolution Securities in London, wrote in a note. “Unless we see some stabilization soon, a number of governments may find it very difficult to access the markets at a yield that makes any financial sense for them or, in some cases, at all.”

Stocks pared their decline as European Union spokesman Amadeu Altafaj told reporters in Brussels today that “Greece’s needs will be met in time.”

Two-Year Note

The yield on Greece’s two-year note has risen almost fivefold this month on concern euro-region support for the country will come too late to prevent a default. The yield soared almost 600 basis points at one stage today. Ireland’s jumped 90 basis points to 4.64 percent, Portugal’s increased 93 basis points to 6.24 percent and Spain’s rose 20 basis points to 2.26 percent.

Credit-default swaps on Greece, Portugal and Spain advanced to records, according to CMA DataVision. Contracts on Greece climbed 42 basis points to 865.5, Portugal jumped 20 to 406 and Spain increased 2 basis points to 211, CMA prices show.

“It’s not a question of the danger of contagion. Contagion has already happened,” Angel Gurria, secretary general for the Organization for Economic Cooperation and Development, said in a Bloomberg television interview today in Berlin. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”

Stocks Slump

The Stoxx Europe 600 Index fell 0.8 percent, extending yesterday’s 3.1 percent slide. Spain’s IBEX 35 tumbled 1.6 percent while Italy’s FTSE MIB Index lost 1.6 percent. Banco Comercial Portugues SA, whose rating was also cut yesterday by S&P, plunged as much as 17 percent in Lisbon. Banco Santander SA, Spain’s largest bank, fell 2.2 percent in Madrid. Nobel Biocare Holding AG plummeted 17 percent in Zurich after saying first-quarter revenue fell. Royal Dutch Shell Plc gained 3 percent in London after reporting a surge in profit.

In Athens, National Bank of Greece SA, the nation’s largest lender, rose 7.9 percent, paring some of yesterday’s 10 percent plunge. The Hellenic Capital Market Commission banned short- selling of stocks on the Athens stock exchange effective today through June 28, citing “the extraordinary conditions prevailing on the Greek market.” The ASE Index is down 21 percent this year.

Using Options

The VStoxx Index, which gauges the cost of using options to protect against declines in the Euro Stoxx 50 Index, rallied as much as 20 percent.

The MSCI Asia Pacific Index fell 1.9 percent as financial stocks declined. Mitsubishi UFJ Financial Group Inc sank 2 percent in Tokyo. Canon Inc., a camera maker that counts Europe as its largest market, slumped 2.5 percent. Billabong International Ltd., an Australian surfwear maker that gets 23 percent of its revenue in Europe, sank 3.4 percent in Sydney.

The advance in U.S. futures indicated the S&P 500 may regain some of yesterday’s 2.3 percent slide, the biggest since February. Companies in the S&P 500 may increase profits 29 percent this year and 19 percent in 2011, the biggest two-year advance since 1998, estimates from more than 1,500 analyst compiled by Bloomberg show. Wellpoint Inc. and Dow Chemical Co. are among 48 companies on the benchmark gauge that report earnings today.

The MSCI Emerging Markets Index dropped 1.6 percent. Russia’s Micex Index lost 1.5 percent and Hungary’s Budapest Stock Exchange Index fell 1.6 percent.

Euro Weakens

The euro advanced 0.3 percent to $1.3213. It dropped 1.6 percent yesterday, the biggest one-day decline since April 27, 2009. The pound weakened 0.5 percent versus the dollar and 0.8 percent against the euro after former Bank of England policy maker Timothy Besley said the U.K. economy remains in a “fragile state.”

Treasuries fell, with the 10-year yield rising 4 basis points to 3.72 percent, before the government sells $42 billion of five-year notes today. The yield on the 10-year German bunds rose 9 basis points to 3.03 percent, according to Bloomberg generic data. The Federal Open Market Committee’s two-day meeting concludes today in Washington. It is expected to keep interest rates at zero to 0.25 percent in a statement at about 2:15 p.m.

Nickel for delivery in three months slumped as much as 4.5 percent to $24,750 a metric ton on the London Metal Exchange. Copper and aluminum also declined. Europe will account for about a fifth of global demand for copper this year and about a quarter of nickel consumption, Barclays Capital estimates. Crude oil fell 0.3 percent to $82.16 a barrel, after U.S. stockpiles rose to their highest since May 2009.

To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net