Stocks, commodities fall on euro crisis fears

(Reuters) – Asian shares and commodities fell today on growing worries that Europe’s intractable debt problems will plunge the world into a second global financial crisis.

Copper fell three per cent, gold slipped towards US$1,600 (RM4,800) an ounce to stand more than US$300 below its record high earlier this month, and commodities-related stocks such as global miner Rio Tinto were dumped on worries that demand will weaken as the international economy slows.

The past week has seen a broad sell-off of commodities, equities and emerging markets bonds and a rally in the dollar that has been reminiscent of the rout surrounding the collapse of Lehman Brothers investment bank three years ago.

“It seems periods of optimism are getting shorter and the pessimism is getting longer,” said David Land, analyst at CMC Markets in Sydney.

“This is being driven by the clear realisation that while there are many plans as to how to deal with the Euro situation, the reality of getting agreement will be that much harder.”

Tokyo’s Nikkei share average fell 1 per cent, while MSCI’s broadest index of Asia Pacific shares outside Japan dropped 0.8 per cent, with its materials sub-index shedding more than two per cent.

S&P 500 index futures were mildly negative, after Wall Street’s broad benchmark dropped 2.1 per cent yesterday.

“The market situation is still tough, with worries about global growth,” said Fujio Ando, senior managing director at Chibagin Asset Management in Tokyo.

The latest source of nervousness was a vote in Germany’s parliament at 0900 GMT today to approve new powers for the euro zone’s €440 billion (RM1.76 trillion) rescue fund.

While opposition votes will ensure the bill passes, a big rebellion within Chancellor Angela Merkel’s own centre-right coalition could weaken her politically and cloud future policy making at a time when financial markets and other nations are urging euro zone leaders to act boldly and decisively.

The euro was a little firmer around US$1.3555, while the dollar rose 0.2 per cent against a basket of currencies.

“You would suspect weakness until Germany votes, given that it is the big guy that has to fund it,” said Gavin Stacey, head of Australia and New Zealand research at Barclays Capital.

“The euro is most likely to continue its trend deterioration until it gets really bad, forcing a resolution to come.”

Commodities continued to slide, with copper, which is highly sensitive to expectations for global growth, falling to US$7,036.75 a tonne.

US crude oil futures fell 0.6 per cent to US$80.70 a barrel and Brent crude lost 0.4 per cent to US$103.37.

Gold , which has seen a shift from a negative to a positive correlation with riskier assets over the past week or so as investors seeking safety have turned their back on the metal in favour of the dollar and US Treasuries, fell 0.2 per cent to around US$1,605 an ounce.

Japanese government bonds were in demand for their safe haven appeal, with the benchmark 10-year yield falling one basis point to 0.995 per cent following similar moves in Treasuries, where the 10-year yield dipped back below two per cent yesterday.