Euro, Asian Stocks Fall Before Italy Vote

By Shiyin Chen - Nov 6, 2011

The euro weakened against the dollar and yen, while Asian stocks declined as concern Italian Prime Minister Silvio Berlusconi will fail to muster a majority for a key parliamentary vote tomorrow overshadowed Greece’s plans to form a national unity government. The Swiss franc dropped.

The 17-nation currency retreated 0.2 percent to $1.3769 and lost 0.3 percent to 107.59 yen as of 1:05 p.m. in Tokyo. The franc sank 0.8 percent versus the euro after the central bank signaled it is ready to act if the currency’s strength threatens Switzerland’s economy. The MSCI Asia Pacific Index slipped 0.3 percent, while Standard & Poor’s 500 Index futures dipped 0.2 percent, down from an increase of as much as 0.6 percent. Oil was set for a fourth day of gains. Gold reached a six-week high.

Italy’s parliament will vote tomorrow on the 2010 budget report amid an unraveling of Berlusconi’s majority and a surge in the nation’s borrowing costs. Greek Prime Minister George Papandreou agreed to step down as a new government is created to secure international financing and avert a collapse of its economy. European finance chiefs will meet in Brussels today to work on details of a plan to bulk out the region’s bailout fund.

“It’s a short-term fix but even a new government needs to cut spending, increase taxes and get their house in order, so it’s not over yet,” said Kumar Palghat, managing director and founder of Kapstream Capital Pty, referring to Greece. “The next step is what happens in Italy. We’re really not out of the woods yet when it comes to Europe,” he said in a Bloomberg Television interview from Sydney.
Greece, Italy

The euro weakened 2.5 percent last week on Papandreou’s decision to put the terms of the European Union’s rescue plan to a referendum.

Investor concern about Italy’s ability to cut the region’s second-biggest debt load sent the yield on the nation’s 10-year bond to about 6.4 percent on Nov. 4. Two Berlusconi allies defected to the opposition last week and a third quit yesterday. Six others called for the Prime Minister to resign and seek a more broadly backed government in a letter to newspaper, Corriere della Sera.

“The market’s focus is shifting to Italy,” said Yunosuke Ikeda, an analyst of foreign-exchange research at Nomura Securities Co. “Yields on Italian bonds may continue to rise unless Berlusconi resigns. The euro is likely to inch lower amid the flow of rather bad news out of Europe.”

The Swiss franc weakened against all 16 major peers after central bank President Philipp Hildebrand said in an interview with NZZ am Sonntag newspaper that policy makers expect the currency to depreciate further. It traded at 1.2304 per euro and declined 1 percent to 89.36 centimes versus the dollar.
Government Intervention

Concern that Europe’s sovereign-debt crisis will spread and global economic growth is slowing has buoyed demand for havens such as the franc and yen, spurring Swiss and Japanese policymakers to intervene in currency markets. The yen climbed 0.1 percent to 78.14 per dollar, after advancing to a post-World War II record on Oct. 31.

About four shares retreated for every three that gained on MSCI’s Asia Pacific Index, which sank 3.6 percent last week. Japan’s Nikkei 225 Stock Average slid 0.4 percent, Australia’s S&P/ASX 200 Index decreased 0.5 percent, while Hong Kong’s Hang Seng Index slid 0.2 percent. Markets in India, Singapore, Malaysia and the Philippines are closed for a holiday today.

Asics Corp. tumbled 11 percent in Tokyo after the sporting goods maker cut its full-year net-income forecast. Furukawa Electric Co. slumped 10 percent after the cable maker forecast a full-year loss.

Futures on the S&P 500 signal the U.S. stocks gauge may extend the Nov. 4 drop of 0.6 percent. Treasury 10-year yields climbed three basis points to 2.06 percent, rebounding from a decrease of four basis points on Nov. 4. The U.S. Treasury Department plans to sell $72 billion of notes over three days this week, beginning with tomorrow’s sale of three-year debt.

Oil rose for a fourth day, gaining as much as 0.7 percent to $94.96 a barrel in electronic trading on the New York Mercantile Exchange. Gold for immediate-delivery climbed as much as 1 percent to $1,772.03 an ounce before trading at $1,769.27.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
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