Sept. 5 (Bloomberg) -- Stocks fell, Italian bonds dropped for an 11th day and the cost of government and bank default insurance rose to records on concern Europe's debt crisis will worsen. The euro weakened, while the dollar and gold gained. The MSCI All-Country World Index sank 1.6 percent at 9:42 a.m. in New York. Banks led the Stoxx Europe 600 Index down 3.7 percent. Italy's 10-year bond yield rose 27 basis points in the longest sequence of gains since the euro's debut in 1999. The German bund yield fell to a record low of 1.88 percent. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose nine basis points. The euro weakened for the fifth day versus the dollar, the longest since January. German Chancellor Angela Merkel's party lost weekend elections in her home state, stoking concern opposition is growing to bailouts for debt-saddled European nations. The U.S. filed 17 lawsuits against banks on Sept. 2 to recover $196 billion spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac. Citigroup Inc. cut its 2011 global economic growth forecast today to 3.1 percent from 3.7 percent. U.S. markets are closed today for the Labor Day holiday. "Sovereign risk-related events remain the main market drivers," Markus Ernst, a strategist at UniCredit SpA in Munich, wrote in a note. "The negative market sentiment is unlikely to change for the better in Europe." Futures on the Standard & Poor's 500 Index slid 2 percent. U.S. markets are closed today for the Labor Day holiday. Deutsche Bank, RBS All 19 industries in the Stoxx 600 retreated, with losses ranging between 2 percent and 5.8 percent. Deutsche Bank AG, Credit Suisse Group AG, Barclays Plc, Societe Generale SA and Royal Bank of Scotland Group Plc dropped at least 6.8 percent. HSBC Holdings Plc fell 3.5 percent. The Markit iTraxx Financial Index of default swaps linked to senior debt of 25 banks and insurers soared 18 basis points to 264 basis points. Clariant AG tumbled 16 percent, for the biggest decline on the Stoxx 600, after the chemical maker cut its sales and profit-margin projections for this year. The extra yield investors demand to hold Italian 10-year bonds instead of benchmark bunds climbed 38 basis points to the most since Aug. 5. The yield on the Greek two-year note jumped 2.76 percentage points to 49.96 percent. The 10-year bund yield dropped 14 basis points to 1.87 percent. Italian Prime Minister Silvio Berlusconi is facing a general strike tomorrow as he seeks parliamentary backing for a 45.5 billion-euro ($65 billion) austerity plan. Euro, Dollar The euro depreciated as much as 1 percent to $1.4066, the weakest level since Aug. 5. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced for the fifth day to the highest level in a month. The Swiss franc strengthened 1.6 percent versus the euro and 0.6 percent against the dollar, while the yen appreciated against 13 of its 16 major counterparts. The premium European banks pay to borrow in dollars for three months through the swaps markets increased to the most since December 2008, a sign lenders may be struggling to get funding. The cost of converting euro-based payments into dollars, as measured by the three-month cross-currency basis swap, fell 4.8 basis points to 95 basis points below the euro interbank offered rate, or Euribor, indicating a higher premium to buy the greenback, according to data compiled by Bloomberg. Basis swaps allow banks to borrow in one currency, while simultaneously lending in another. The MSCI Emerging Markets Index dropped 3.1 percent, the most since Aug. 8. South Korea's Kospi Index retreated 4.4 percent, more than any other bourse in the world. The Shanghai Composite Index slid 2 percent after a measure of Chinese services dropped to a record low. Benchmark gauges in Poland and Hungary fell at least 1.5 percent. Gold climbed 1.1 percent to $1,898.20 an ounce. Oil in New York fell 2.7 percent to $84.12 a barrel and copper futures declined 1.8 percent. --With assistance from Shiyin Chen in Singapore and Claudia Carpenter, Will Hadfield, Michael Shanahan, Daniel Tilles and Jason Webb in London. Editors: Stephen Kirkland, Nick Baker

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