While you were sleeping: European stocks tumble; greenback weakens vs yen

Friday 27th November 2009

European stocks tumbled after Dubai World, the state-owned investment company, sought to reschedule its debt, sapping investors’ appetite for risk and helping boost bonds. The U.S. dollar sank to a 14-year low against the yen.

The Stoxx Index, which measures the cost of using options to protect against declines in the Dow Jones Euro Stoxx 50 Index and is designed to reflect market expectations of near-term volatility, soared 28% to 30.35.

The broader Dow Jones Stoxx 600 Index fell 3.2%. U.S. markets were closed for the Thanksgiving holiday on Thursday.

Banks were among the biggest decliners across Europe. Barclays Plc plunged about 8% and Royal Bank of Scotland fell 7.8%, leading a 3.2% decline in the U.K.’s FTSE 100 to 5194.13.

Deutsche Bank fell 6.4% and Commerzbank declined 3.9%, contributing to a 3.3% decline in Germany’s DAX 30 to 5614.17. France’s CAC 40 fell 3.4% to 3679.23, with Societe Generale falling 5.5%, Credit Agricole sinking 5.2% and BNP Paribas falling 5.1%.

Dubai is now ranked among the 10 sovereigns with the highest probability of default, according to CMA DataVision. Credit-default swaps tied to its debt rose 101 basis points to 541.20.

The cost of protecting other Gulf state sovereign debt against default also rose. Contacts linked to Saudi Arabia rose 17.9 basis points to 108.32 and those tied to Abu Dhabi gained 23 basis points to 159.66.

Dubai World, which has liabilities of US$59 billion, this week sought a “standstill” agreement from creditors. Moody’s Investors Service and Standard & Poor’s cut the ratings on Dubai state companies yesterday.

Having spent $80 billion on a four-year construction boom, Dubai has since suffered the world’s steepest property slump, according to Bloomberg.

The yen climbed to a 14-year high against the U.S. amid speculation traders will test The Japanese government’s willingness to allow its currency to strengthen.Japan’s currency strengthened to 86.48 per dollar and earlier touched 86.30, the strongest since July 1995, from 87.35 the previous day. The greenback traded at $1.5008 from $1.5134. The yen rose to 129.82 per euro from 132.21.

The Swiss franc fell against the dollar amid talk the Swiss National Bank sold its currency, which reached parity with the greenback the previous day. The franc fell 0.7% to 1.0034 per dollar.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.7% to 74.82.

Crude oil fell on subdued trading, reflecting the U.S. holiday.Crude for January delivery fell 2.3% to US$76.14 a barrel on the New York Mercantile Exchange.

Copper fell from a 14-month high in London as rising stockpiles of the metal used to make pipes and wire stoked concern demand is slowing. Copper inventories monitored by the London Metal Exchange rose 0.1% to 432,075 metric tons.

Copper for three-month delivery fell 0.8% to US$6,930 a ton on the LME.

Gold futures for February delivery fell 0.3% to US$1,185.30 an ounce in New York and earlier touched a new record US$1,196.80.

Businesswire.co.nz

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