July 23: The euro hit its lowest level in more than two years and world equity markets fell sharply on Monday after reports that Spain's indebted regions need help fuelled fears that the country will become the fourth Eurozone member to ask for a major bailout.
Spanish media reported that up to six regions might seek aid from the central government after Valencia asked for funds on Friday. That request sent Spanish bonds to an euro-era high of more than 7.5 per cent, above the 7 per cent level viewed as sustainable.
How Spain's 17 indebted autonomous regions, locked out of international debt markets, refinance 36 billion euros in debt this year has been a major source of concern for investors ever since they missed deficit targets last year.
In India, the Sensex tumbled 281 points at the start of a nervous week amid the fears on Spain and deepening worries about a truant monsoon at home that could send inflation soaring in the weeks ahead.
Tracking the weak stock markets, the rupee today plunged 65 paise to 55.97, its lowest closing in over three weeks amid the Eurozone worries and month-end US currency demand from oil firms.
The euro slid as low as $1.2067, its weakest since June 2010, and was last down 0.3 per cent at $1.2089. Against the yen, it was near a 12-year trough. Yields of US Treasury benchmark notes set new record lows in a flight to quality.
"The week is off to a challenging start as rising fears over Europe push risk aversion higher," said Camilla Sutton, chief currency strategist at Scotia bank in Toronto.
"Most of the focus is on Spain, with rising concern it too will need to access financial aid," Sutton said.
Brent crude was also down $4.13 at $102.70 a barrel, while US crude fell $3.83 to $88.00 a barrel.
Wall Street stocks opened more than 1 per cent lower, following declines of more than 2 per cent in European and emerging market indexes.
The Dow Jones Industrial Average was down 112.46 points, or 0.88 per cent, at 12710.11. The Standard and Poor's 500 Index was down 14.25 points, or 1.05 per cent, at 1348.41. The Nasdaq Composite Index was down 38.75 points, or 1.32 per cent, at 2886.55.
The FTSE Eurofirst 300 index of top European shares fell 2.36 per cent to 1024.27 points, while MSCI's emerging markets index was down 2.8 per cent and the all-country world equity index fell 2.2 per cent.
Spain's main share index, the Ibex, was down 1.10 per cent.
Meanwhile, Italy's market watchdog today imposed a week-long ban on the short-selling of shares in banks and insurance companies as the Milan stock index plunged amid fears over the country's financial stability. Milan's main stock index, the FTSE-MIB, closed down 2.8 per cent after being down by more than 5 per cent in the morning.
Spain must make coupon and redemption payments to bondholders totalling 20 billion euros ($24.3 billion) next Monday.
Spanish economy minister Luis de Guindos, who visits Berlin on Tuesday for talks with Germany's finance minister, has insisted Spain does not need a full sovereign bailout, such as those for Greece, Ireland and Portugal.
Key Asian benchmark indices in Japan, Hong Kong and China closed with losses in the 2 to 3 per cent range
BSE bellwether Sensex plunged below the psychological 17000-mark to a near one-month low at 16877.35 as investors dumped stocks in a skittish market. Capital market mavens fear that equities can continue to remain under pressure on account of both global and local worries.
Brokers added that apart from the Spain problem, there had been apprehensions on the domestic front. While the monsoon so far has been below normal, there are fresh concerns emerging on whether the central government will be able to initiate reform measures. The doubts came after a few political parties expressed their opposition to relaxing FDI rules in retail. Retail stocks wilted with Pantaloon Retail (India) slumping nearly 8 per cent.
After opening lower on weak Asian cues at 17047.73 , the BSE benchmark index hit a low of 16849.28 and ended at 16877.35, a loss of 281.09 points, or 1.64 per cent. All sectoral indices, led by metal and realty, suffered losses. On the NSE, the 50-share Nifty lost 87.15 points, or 1.67 per cent, to 5117.95.
Across the market, nearly 1,800 stocks ended lower, while 990 scrips gained. In the 30-share Sensex, 28 stocks, led by Maruti and Sterlite that lost over 5 per cent each, closed lower as across-the-board selling was seen.
"The markets lost about 1.7 per cent on concerns that, Spain might become the fourth Eurozone member to need a full international bailout. There were also concerns that, there may be resistance to FDI in retail. This may mean that, the government may face further roadblocks to economic reform agenda," said Dipen Shah at Kotak Securities.