Markets were clearly unimpressed with the 110 billion-euro aid package agreed for Greece over the weekend by the European Union and International Monetary Fund and are skeptical the country can deliver on its promises of tough austerity measures.

Debt insurance costs for Portugal and Spain have continued to rise while shares in Spain and Portugal, two of the weaker euro zone members, fell 2 percent, the latter at the lowest since July 2009.

The FTSEurofirst 300 index of leading European shares pared losses slightly thanks to strong results by market bellwethers like Societe Generale.

But the sovereign debt fears eclipsed the corporate earnings, keeping the index near two-month lows and down 0.4 percent on the day.

The euro, which suffered its steepest one-day loss since last June on Tuesday, notched up another one-year low at $1.2928 according to Reuters data.

In Athens, striking public sector workers challenged Greece’s bailout-for-austerity deal, while policymakers, including IMF chief Dominique Strauss-Kahn and the European Central Bank’s Axel Weber, warned of the dangers of contagion to other high-debt euro zone nations.

“The questionable way the Greek crisis has been handled and concerns about the peripherals are weighing on sentiment. I expect euro weakness to remain in place,” said Kenneth Broux, market economist at Lloyds Banking Group.

“I see $1.25 as the next big (euro) level on the downside.”

The euro has fallen about 3 percent this week. It displayed no response to upbeat services sector data that suggests the euro area economic recovery has momentum..

World stocks as measured by MSCI fell half a percent to their lowest since early March, while the more volatile emerging equities index fell 1.5 percent.

Asian markets also weakened. Shanghai’s key index fell as much as 2 percent to its lowest in seven months, suffering from Beijing’s weekend moves to tighten policy.

U.S. equities are poised to open lower, with S&P 500 futures

and the Nasdaq100 futures down 0.4 percent. The Dow Jones industrial average futures eased 0.2 percent.

DOLLAR THE WINNER

Investors took shelter in the dollar and benchmark U.S. and German government bonds.

The dollar index was steady after gaining 1.4 percent on Tuesday, its biggest daily gain this year, and the U.S. currency tested eight-month highs against the yen near 95.

Two-year German Schatz yield hit a record low, while the 10-year German Bund yield touched the lowest since mid-January 2009. Benchmark Treasury yields were at the lowest in almost three months.

“(Euro zone) periphery is widening so that’s given a bid to Bunds. There’s absolutely no market in anything apart from Germany,” one bond trader said. “It’s all about contagion fears spreading in all the markets.”

Oil extended losses toward $82 per barrel, following the steepest one-day percentage loss in three months on Tuesday, on rising inventories and a firm dollar.

Gold also came under pressure as the dollar strengthened.

Portuguese debt insurance costs rose to 360.7 basis points in the five-year credit default swap market, one of the highest levels in Europe, according to CDS monitor CMA DataVision. Spanish 5-year CDS edged up to 211.8 bps.

Posted by Shayne Heffernan on May 5th, 2010and filed underEurope, Latest News, USA.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site