Wed Mar 23, 2011 4:03pm GMT
* Euro slips as Portugal vote looms
* Sterling falls on UK growth projections
* Europe debt concern weighs on U.S. stocks
* Gold, bunds up on safety bid (Updates with Portuguese parliament debate, updates prices, adds copper)
By Rodrigo Campos
NEW YORK, March 23 (Reuters) - Worries that a political crisis in Portugal could force the debt-laden country to seek a bailout sent the euro lower on Wednesday and triggered safe-haven demand for German government bonds.
The renewed fears of a euro zone debt crisis drove down European banking shares and weighed on stocks in New York. U.S. Treasury debt prices, which had risen earlier on safe-haven demand, slipped following a Federal Reserve purchase.
Uncertainty over the longer-term impact of Japan's earthquake, tsunami and nuclear crisis fueled a safety bid for precious metals, driving up the price of gold and sending silver to the highest price since 1980.
The cost of insuring Portugal's five-year debt against default hit two-month highs, reflecting the growing belief that Lisbon will follow Greece and Ireland in seeking emergency funding if parliament rejects a new series of austerity measures. The yield on Irish government bonds also soared to new euro-lifetime highs.
Portugal's parliament started a plenary session to debate the government's austerity measures, setting the stage for the likely collapse of the minority Socialist administration. Prime Minister Jose Socrates has threatened to resign if the package is rejected in a vote expected later on Wednesday.
"There's currently a lot of concern on the Portuguese budget vote and the potential political implication for it. The fear is that if Portugal failed to agree on austerity measures, we can potentially see the country forced into the EFSF" rescue fund, said Mary Nicola, currency strategist at BNP Paribas in New York.
Hopes that this week's European summit would yield a decision on how to increase the effective capacity of the euro zone bailout fund were dashed after the release of a draft document prepared for the meeting. The decision will likely come in June. [ID:nBRU011391].
Portugal's political crisis has knocked the euro from its recent 4-1/2-month highs against the U.S. dollar, although the slide is expected to be temporary, given the expectation for the European Central Bank to raise interest rates next month.
The euro EUR=EBS was last down 0.4 percent at $1.4138, having hit a low for the session of $1.4105, according to trading platform EBS.
The renewed concerns over European debt kept European stocks near break even and took a toll on Wall Street.
A plunge in sales of new U.S. single-family homes in February to the lowest level since 1963 also weighed on Wall Street, as the data from the U.S. Commerce Department suggested the housing market slide was deepening. [ID:nCAT005396]
"If the data continues to implode the way it has been, we'll see new lows in the stocks. And if that happens, we'll have to expect a protracted downtrend in the market. When the market gets better --it will happen-- you'll see it first in housing stocks," said Adam Sarhan, chief executive of Sarhan Capital in New York.
An objection by the Federal Reserve to Bank of America's (BAC.N) plans to boost its dividend weighed on U.S. bank shares. Bank of America shares fell 2.6 percent.
The Dow Jones industrial average .DJI edged up 2.15 points, or 0.02 percent, to 12,020.78. The Standard & Poor's 500 .SPX dropped 3.77 points, or 0.29 percent, to 1,290.00. The Nasdaq Composite .IXIC fell 4.62 points, or 0.17 percent, to 2,679.25.
The FTSEurofirst 300 .FTEU3 edged up less than 0.1 percent as a rise in mining shares helped offset weaker bank stocks. The MSCI All-Country World index .MIWD00000PUS fell 0.3 percent, down for the first session in five. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ U.S. trading volume slowdown r.reuters.com/gyp68r Japan earthquake in graphics r.reuters.com/fyh58r U.S. crude futures chart: link.reuters.com/maq68r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
YEN LITTLE CHANGED
The yen stayed in a tight range close to 81 per dollar, though traders were wary the Bank of Japan might step in again if the dollar fell below 80.50, following Friday's rare market intervention by major central banks to curb Japan's currency.
Underlining the continuing risks in Japan, authorities advised against allowing infants to drink tap water in Tokyo due to raised radiation levels, and the United States blocked some food imports from Japan. [ID:nL3E7EM3EM]
Sterling fell 0.7 percent to $1.6253 GBP=D4, hitting the day's low as UK Chancellor George Osborne released a lower growth projection for the coming year and increased borrowing targets from 2011/12 to 2014/15. See [ID:nWLA6167]
U.S. Treasuries pared early gains to trade slightly negative in price in the wake of the Federal Reserve's purchase of $7.56 billion of Treasuries. Benchmark 10-year Treasury notes US10YT=RR were trading 4/32 lower to yield 3.34 percent, up from 3.33 percent late Tuesday.
The Bund future FGBLc1 was 29 ticks higher at 122.31. Germany sold 3.4 billion euros of 10-year bonds, attracting greater demand than at a previous sale thanks to the risk-averse mood in markets. [ID:nLDE72M11L]
U.S. oil prices CLc1 edged higher while Brent LCOc1 traded flat, with prices expected to remain underpinned by violence in Libya and unrest in Yemen, which neighbors top producer Saudi Arabia.
"Yemen is a very hot topic now. It is not that important to the oil market but unrest in the region gives enough psychological support to prices," Andy Sommer, energy market analyst with EGL, said.
Spot gold XAU= was up 0.7 percent at $1,438.94 an ounce. Silver XAG= was at $36.86 an ounce at 1547 GMT, just below the session high of $36.93 an ounce, from $36.34 late in New York on Tuesday.
Copper rose over 2 percent to a two-week high on expectations of a supply deficit this year, but the price recovery may be hindered by unrest in Libya and concerns about Japan.
Egyptian stocks .EGX100 closed 9 percent lower in the first day of trading on the Cairo exchange since Jan. 27, after closing due to the political turmoil that ousted Hosni Mubarak last month. (Additional reporting by Ryan Vlastelica, Wanfeng Zhou, Richard Leong and Ikuko Kurahone; Editing by Leslie Adler)