BS: Euro Decline on Rescue Fund Concern as German Bonds Rise
By Stephen Kirkland
Dec. 7 (Bloomberg) -- Stocks declined, the euro weakened and U.S. index futures erased gains after a German government official said the country rejects proposals to combine the current and permanent euro-area rescue funds. German bonds rebounded after bids exceeded the target at an auction.
The Stoxx Europe 600 Index lost 0.5 at 8:23 a.m. in New York, after climbing as much as 1.2 percent. Standard & Poor’s 500 Index futures slipped 0.2 percent. The euro slid 0.3 percent to $1.3363, reversing an earlier advance. The yield on the German five-year note fell seven basis points to 1.04 percent, with Portugal’s two-year yield dropping after borrowing costs declined at a government sale of three-month bills.
It is already decided that the permanent European Stability Mechanism will take over from the current rescue fund at an appointed time, the German official told reporters in Berlin on condition of anonymity because the negotiations are private. Stocks gained earlier after the Financial Times reported yesterday officials were negotiating a bigger rescue effort to discuss at the European summit.
“The euro has come back under some pressure after the reports of a German official dampening down expectations of an agreement on the rescue fund coming out of the EU summit,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London.
The euro depreciated against 12 of its 16 major peers, losing 0.3 percent versus the yen.
‘Under Pressure’
The yield on the German 10-year bund fell six basis points. Germany got bids for 8.67 billion euros ($11.6 billion) of five- year notes at an auction today, more than the maximum sales target of 5 billion euros, the Bundesbank said.
The Portuguese two-year note yield dropped 73 basis points. The government issued bills due March 2012 at an average yield of 4.873 percent, down from 4.895 percent at a previous auction on Nov. 16. Italian 10-year bond yields declined six basis points.
The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level since July 2009 as the euro region’s sovereign debt crisis intensifies. The London interbank offered rate, or Libor, for three-month dollar loans climbed to 0.54000 percent, from 0.53775 percent yesterday, data from the British Bankers’ Association showed.
The European Central Bank said demand for three-month dollar loans jumped after it almost halved the cost of the funds in a concerted action with five other central banks including the U.S. Federal Reserve. The ECB said it will lend $50.7 billion to 34 euro-area banks tomorrow for 84 days at a fixed rate of 0.59 percent. That compares with the $395 million lent in the last three-month offering on Nov. 9 at a rate of 1.09 percent.
--With assistance from and Lynn Thomasson in Hong Kong, Corinne Gretler in Frankfurt, Claudia Carpenter, David Goodman, Abigail Moses, Daniel Tilles and Jason Webb in London. Editors: Stephen Kirkland, Michael Regan
To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net
