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Global Markets: Italian stocks slide, dollar's rally pauses

Reuters  |  LONDON 

By Tommy Wilkes

LONDON (Reuters) - Italian stocks fell on Wednesday after reports that two parties seeking to form Italy's next government could seek debt forgiveness, although broader markets were unfazed and focused instead on a pause in surging U.S. bond yields.

Rising U.S. borrowing costs have rattled markets globally because of worries they will hurt global demand, but with the dollar flat and Treasury yields off their recent highs on Wednesday, most European stock markets opened higher.

Asian markets had earlier dipped slightly after abruptly called off talks with Seoul, throwing a U.S.-North Korean summit into doubt.

The exception was Reports suggested the 5-Star and League parties, trying to form a government after inconclusive March 4 elections, had written a draft coalition deal asking for debt forgiveness from the European Central Bank, frightening investors in the euro zone's third-largest economy.

Italian stocks fell half a percent while the pan-European rose 0.16 percent.

Euro zone banks slid 0.51 percent, although they pulled back from earlier larger losses after a said the request for cancellation of the debt was never in the official draft of the government programme.

"The proposal is surreal. Pretending the unilateral cancellation of 250 billion euros of debt bought by the ECB as part of the QE programme... would be absurd," said Giuseppe Sersale, fund manger at Milan-based

"Even if unfeasible, the tone of the debate bolsters expectations there will be a stormy relationship with and a further relaxation of financial discipline."

The difference in borrowing costs over German rose sharply overnight but later pulled back.

The euro traded up slightly at $1.1846, away from 2018 lows hit on Tuesday, with the single currency seemingly shrugging off concerns about Italian politics.

The equity index, which tracks shares in 47 countries, traded flat.

North Korea's cancellation of a June 12 summit in added to a backdrop of geopolitical worries for financial markets, given it could see tensions on the flare again and damage U.S.-efforts to resolve an ongoing trade dispute.

"This will weigh on the Korean reconstruction beneficiaries that have had a strong run on peace and even reunification hopes recently," analysts wrote in a note.

"The broader risk for the region if talks do break down is that Trump no longer feels the need to keep on side and could escalate trade tensions again."

In currency markets, the dollar paused below five-month highs reached on Tuesday after economic data out of the pushed bond yields and demand for the greenback higher.

The U.S. currency has enjoyed a blistering rally in recent weeks as investors focus on a Federal Reserve raising interest rates while central banks elsewhere push back policy tightening.

Strong U.S. and factory data on Tuesday pushed the U.S. 10-year yield through a key level to hit 3.095 percent, its highest since July 2011, raising worries about higher borrowing costs for companies worldwide.

The 10-year yield was last at 3.065 percent.

Rising U.S. borrowing costs and a stronger dollar are having their biggest impact in emerging markets, where investors are pulling money out, particularly from countries with large deficits and dollar funding needs.

The Indonesian rupiah hit a 2-1/2-year low while the Malaysian ringgit hit a four-month low overnight.

The Turkish lira weakened and approached a fresh record low. Tayyip Erdogan's comments that he plans to take greater control of the economy have hammered the lira this week.

In commodities markets, gold rebounded after hitting a 4 1/2-month low the previous day on a strong dollar.

remained near recent highs amid concerns that U.S. sanctions on may restrict crude exports from a

For Live Markets blog on European and UK stock markets open a window on Eikon by pressing F9 and type in 'Live Markets' in the

(additional reporting by Andrew Galbraith in SHANGHAI, Tomo Uetake in TOKYO and Swati Pandey in SYDNEY; Editing by Jon Boyle)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, May 16 2018. 14:36 IST