US stock index futures pointed to a more mixed start on Wall Street after weak retail sales data and the euro zone's problems had sent shares lower yesterday.
"The underlying problem of deteriorating confidence in sovereign debt in Europe is continuing to intensify," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
The rise in Spanish debt yields came as Germany, Europe's most powerful economy, rebuffed calls from other European leaders to help underwrite the region's debt or guarantee deposits in euro zone banks.
Chancellor Angela Merkel, addressing parliament in Berlin, labelled ideas such as issuing joint euro bonds or creating a Europe-wide bank deposit guarantee scheme as "miracle solutions", and said they were "counterproductive" and would violate the German constitution.
The apparent tensions at heart of the euro area over how to deal with the crisis did little to shake the single currency out of its trading range however, with many investors sidelined by the approach of Sunday's cliffhanger election in Greece, which could see it leave the 17-member currency region.
The euro has spent the week within a range between a near two-year low set on June 1st of $1.2288 and Monday's three-week high of $1.2672 and was up 0.1 per cent today at $1.2575.
"The euro has been relatively stable as we head into the Greek election, and that will dictate market direction next week. Investors do not want to take on extra risk at this point," Mr Hardman said.
The worries about Spain sent its 10-year government bond yields up as much as 25 basis points to a record high of 7.02 per cent, just over the 7 per cent mark that
drove Greece, Ireland and Portugal to seek international bailouts.
The rise followed a three-notch downgrade in Spain's credit rating by Moody's Investors Service late yesterday, which took it to within one notch of "junk" status.
Spanish yields have risen sharply this week after euro zone ministers agreed at the weekend on a rescue plan of up to €100 billion for the country's banks that has failed to convince investors it solves Spain's financial problems.
The yields on Spanish debt later eased back to be around 19 basis points higher on the day at 6.97 per cent.
Fears that Spain's problems may be repeated on an even larger scale in Italy, Europe's third-largest economy, saw its three-year borrowing costs spike to 5.3 per cent at auction today, the highest since December.
Italian government 10-year bond yields also rose three basis points to 6.25 per cent.
The FTSEurofirst 300 was down 0.8 per cent, at 979.31, while the EuroStoxx50E implied volatility index, a crude gauge of investors' fears, was up 3 per cent, having more than doubled since mid-March when worries about Spain resurfaced.
Data from the United States showing the recovery in the world's largest economy was at risk from the problems in Europe also undermined sentiment in global share markets sending the MSCI world equity index down 0.3 per cent.
Gold benefited slightly from the rising concerns about the impact of the euro zone crisis, regaining some of its safe-haven allure. Spot gold traded up 0.1 per cent to about $1,620 an ounce, having already gained over 1 per cent this week.
The turmoil in the euro zone, however, did not prompt the Swiss National Bank to change its cap on the franc of 1.20 per euro at its latest policy meeting.
The SNB did say it was ready to buy an unlimited quantity of euro to defend the current policy, despite having to buy large amounts of euro in the past few weeks, and was considering other measures, widely seen as a reference to capital controls.
Reuters
