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Monday, May 17, 2010

Euro hits 18-month low, world stocks fall

The euro hit an 18-month low versus the dollar and global shares fell sharply over fears Europe’s fiscal austerity plans might derail economic recovery.

Worries about fallout from the euro zone debt crisis spurred appetite for safer investments, pushing gold to a record high and supporting demand for US Treasuries. The dollar reached its strongest in a year versus a basket of key currencies.

Stocks and commodity prices plunged, despite data showing US retail sales and industrial production rose firmly in April. Major US stock indices traded with losses of 1-2 per cent. US crude oil prices fell 1.3 per cent.

“If you look long-term, everyone is worried about what these austerity measures will mean in terms of growth,” said Kathy Lien, director of currency research at GFT in New York.

The Dow Jones industrial average dropped 178.74 points, or 1.66 per cent, to 10,604.21. The Standard & Poor’s 500 Index fell 23.91 points, or 2.07 per cent, to 1,133.53. The Nasdaq Composite Index lost 55.21 points, or 2.31 per cent, to 2,339.15. US crude oil fell roughly 3 per cent on the day to hit a three-month low of $72.17 per barrel.

Euro battered
The EU’s emergency assistance plan has done little to bolster confidence in the euro system, a concern highlighted by US While House Economic Adviser Paul Volcker. On Thursday, Volcker said European debt troubles could undermine the single currency.

The euro slid as low $1.2365 on electronic trading platform EBS, the lowest since October 2008. It last traded at $1.2380. “The euro hasn’t derived any benefits from any budget cuts from Spain and Portugal,” said Chris Turner, head of FX strategy at ING, which forecasts the euro will be at $1.15 in six months.

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