World Stocks Drop as Italy Debt Woes Brew

BANGKOK — World stock markets fell Tuesday amid simmering concerns over whether Italy would ever grow robustly enough to repay its massive debts.

Benchmark crude hovered above $98 per barrel. The dollar rose against the euro but slipped against the yen.

European shares fell in early trading. Britain's FTSE 100 lost 0.1 percent to 5,511.81. Germany's DAX shed 0.7 percent to 5,944.78 and France's CAC-40 slipped 1 percent to 3,078.69. Wall Street also appeared set for lower open. Dow Jones industrial futures slipped 0.2 percent at 12,040 and the broader S&P 500 futures lost 0.2 percent to 1,249.90.

Asian stock markets were mostly lower. Japan's Nikkei 225 index lost 0.7 percent to close at 8,541.93. South Korea's Kospi index dropped 0.9 percent to 1,886.12 and Hong Kong's Hang Seng fell 0.8 percent to 19,348.44. Benchmarks in Australia, Taiwan and Singapore also retreated. Mainland China's Shanghai Composite Index closed marginally higher at 2,529.76.

Editor's Note: 50% Unemployment, 90% Stock Market Drop, 100% Inflation. See the Evidence.

Markets have been buoyed the past few days as Greece and Italy moved to form new governments and embarked on other steps to get their debt troubles under control.

But a worrisome sign emerged Monday when the Italian government sold five-year bonds at 6.29 percent interest — the highest rate since 1997. Italy paid a much lower rate of 5.32 percent at a similar auction only last month.

The increase is a sign that banks and other bond buyers remain concerned about Italy's ability to pay its debts at a time when the country's economy is stagnant.

Italy's solvency is crucial to the future of the euro currency shared by 17 nations because the country — with euro1.9 trillion ($2.6 trillion) in debt — is too expensive to rescue from a default.

Martin Hennecke, associate director of the financial advisers Tyche Group in Hong Kong, said the results of Italy's bond sale showed that the worst is not over.

"That renewed the concern of whether or not Italy will be able to keep funding itself and prevent a similar crisis in Italy that we've seen in Greece before," Hennecke said. "If that was going to happen to Italy, that could easily sink France as well by extension. French banks have huge exposure to Italy."

Stocks tanked last Wednesday after the borrowing rate on Italy's benchmark 10-year bonds jumped above 7 percent, a level widely seen as unsustainable. On Monday, the yield was at 6.70 percent — still uncomfortably high.

The 7 percent threshold is psychologically important for traders because Greece, Ireland and Portugal asked for bailouts when it became clear the rate wasn't coming back down from that level.

Fears that the debt crises in Europe could blow up into a recession hit energy companies, which are sensitive to global growth. Energy Resources of Australia fell 2.8 percent. Japanese energy explorer Inpex Corp. fell 2.5 percent. Hong Kong-listed PetroChina Co. fell 1.7 percent.

Japan's export sector continued to reel from a persistently strong yen, which reduces the value of overseas profits. Electronics and entertainment conglomerate Sony Corp. fell 1.5 percent. Sharp Corp. and Panasonic Corp. fell by 1.7 percent and 1.3 percent respectively. Yamaha Motor Co. lost 1.7 percent.

Sagging gold prices sent Hong Kong-listed Zijin Mining Group, China's largest gold miner, down 2.5 percent. A falling euro pulled down the price of gold Monday because many traders buy gold as a way to protect themselves against a weak dollar.

In New York on Monday, the Dow fell 0.6 percent to close at 12,078.98. The Standard & Poor's 500 index fell 1 percent to 1,251.79. The Nasdaq composite index fell 0.8 percent to 2,657.22.

Benchmark crude for December delivery was up 3 cents at $98.15 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 85 cents to settle at $98.14 in New York on Monday.

In currency trading, the euro slipped to $1.3574 from $1.3616 late Monday in New York. The dollar weakened to 77.05 yen from 77.12 yen.