By Stephen Kirkland STORYPHOTOVIDEO Euro Weakens, Spanish Bonds Fall on Deficit; U.S. Futures Drop Share Business ExchangeTwitterFacebook| Email | Print | A A A By Stephen Kirkland June 16 (Bloomberg) -- The euro weakened, snapping a two- day rally against the dollar, and the bonds of Spain, Portugal and Greece fell on concern Europe’s deficits will persist. U.S. index futures declined and European stocks pared gains. The euro depreciated 0.4 percent to $1.2289 as of 10:10 a.m. in London. The extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German bunds rose to the highest since the euro’s 1999 debut. Futures on the Standard & Poor’s 500 Index dropped 0.5 percent and the Stoxx Europe 600 Index was little changed. The MSCI Emerging Markets Index advanced for a seventh day, increasing 0.5 percent. Gold climbed to within 1.2 percent of the record. Spanish unions have called for the first general strike in eight years as Prime Minister Jose Luis Rodriguez Zapatero today announces a labor-law overhaul to tame one of Europe’s biggest budget deficits. Debt levels in Spain and Portugal may “snowball” in coming years and additional budget cuts are needed to meet deficit targets, the European Commission said in a May 26 draft document obtained by Bloomberg. “Focus is back on Spain after a couple of days of news about global growth,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank A/S in Copenhagen. The euro dropped 0.5 percent against the Swiss franc, 0.2 percent the pound, and 0.1 percent compared with the yen. The 16-nation currency has weakened 14 percent this year against the dollar. The difference in yield, or spread, between Spanish and German 10-year bunds, Europe’s benchmark government debt securities, widened to 219 basis points, from 206 basis points yesterday, according to Bloomberg generic data. The Portuguese- German spread increased 17 basis points to 295 basis points, and the Greek-German yield difference rose 10 basis points to 651 basis points. U.S. Output The drop in U.S. futures indicated the S&P 500 may pare some of yesterday’s 2.4 percent rally that erased the index’s loss for the year. Output at factories, mines and utilities increased 0.9 percent in May, the biggest jump since January and the 10th gain in 11 months, according to the median estimate of 82 economists surveyed by Bloomberg News before the Federal Reserve’s report due at 9:15 a.m. in Washington. Other data may show wholesale prices and home construction declined last month. In Europe, the Stoxx 600 ended a five-day rally. Spain’s IBEX 35 slid 0.8 percent as the European Union denied a report that the International Monetary Fund, the EU and the U.S. are putting together a 250 billion-euro ($307 billion) credit line for Spain. Daimler AG led automakers lower, retreating 2.2 percent in Frankfurt. Schroders Plc fell 2.3 percent in London as Citigroup Inc. recommended selling the shares. BP ‘Recklessness’ BP Plc dropped 0.6 percent to its lowest level in 13 years. U.S. President Barack Obama vowed that the company will pay for all damage caused by its “recklessness” and that the government would commit to restoring the Gulf Coast. The MSCI Asia Pacific Index rallied 1.1 percent to a four- week high. Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.2 percent in Tokyo. Nintendo Co. jumped 5.2 percent in Osaka, Japan, after the company introduced a new handheld video-game player. Markets in Hong Kong, China and Taiwan were closed today for a holiday. The MSCI emerging index extended its longest stretch of gains in two months as benchmark equity gauges in every major developing nation open for trading today rose. Romania’s BET Index jumped 3 percent, the most worldwide, and the country’s government bonds rallied after Prime Minister Emil Boc survived a no-confidence vote. South Korea’s won led gains in emerging- market currencies, strengthening 1.4 percent against the dollar. Gold climbed 0.2 percent to $1,235.95 an ounce, compared with a record $1,252.11 on June 8. Copper increased 0.6 percent to $6,719 a metric ton on the London Metal Exchange, the seventh consecutive advance. Crude oil for July delivery on the New York Mercantile Exchange dropped 0.4 percent to $76.63 a barrel. To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;

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