European debt fears pressure world stocks

Europe's persistent debt crisis kept the single currency and global stocks under pressure on Wednesday, threatening to overshadow a slight improvement in the economic outlook that has driven a solid rally in world equity markets.

European shares hit a one-week closing high on Tuesday, and US stocks reached a five-month peak, after an upbeat forecast by aluminum company Alcoa about the demand outlook for the metal and amid rising hopes of a policy easing in China.

But concerns about the prospects of Europe extricating itself from its deep-rooted debt problems, set to return to centre stage with a debt sale from Germany today and Italian and Spanish auctions later in the week, saw Asian shares retreat to be little changed overall.

However, the stock market was seen as having the potential for further gains if the debt auctions don't shock.

"It's really the time to allocate more funds to equities. Current prices represent a historic buying opportunity in terms of asset allocation," said Eric Galiègue, head of Valquant, in Paris.

European shares opened slightly higher, up 0.6% at 1,027.85 points. The MSCI world equity index was up just 0.05%.

The euro eased just 0.1% to $1.2760 in early trade, down from Tuesday's high of $1.2819 hit after credit rating agency Fitch said it did not expect to cut France's triple-A rating this year.

Italian 10-year bond yields hovered around the crucial 7.0% level widely seen as unsustainable for a government with massive debts. Spanish 10-year yields stood at 5.53%.

German Bund futures were steady on Wednesday as the market readied for a sale of 4 billion euros in new five-year government bonds. Recent auctions have seen mixed demand with investors caught between desire for low risk assets but with returns at euro-era lows putting off some big investors.

Amid the fears over European funding costs, gold hit a four-week high of $1,646.56 an ounce, before easing slightly to $1,643, as investors were lured to its safety.

Brent crude slipped below $113 on Wednesday as the worries over Europe's debt crisis and expectations of a rise in oil inventories in the United States for the third straight week overshadowed concerns of supply disruption from Iran and Nigeria.