North American markets hold on as Europe debt jitters mount

Shares in Asia sank Tuesday as fears that Europe's debt crisis could infect Italy and Spain added to recent pessimism about the global economic recovery.
Traders work on the floor at the New York Stock Exchange in New York on Monday. The start of the week saw the Dow Jones industrial average losing 151.44 points, or 1.2 per cent, to close at 12,505.76 on Monday, the lowest level in July, partly due to the European debt crisis, which appears to be widening. (Seth Wenig/Associated Press)

North American stocks shrugged off Asian fears concerning Europe's growing debt crisis and posted modest gains in mid-session Tuesday.

The Toronto Stock Exchange gained 54.33 points, inching up to 13,234.07. The TSX was assisted by rising consumer staple stocks with that subindex rising almost three-quarters of a percent in the session.

Among individual stocks, Research In Motion Ltd. was up 0.3 per cent ahead of the company's annual meeting Tuesday and the Bank of Nova Scotia was down 0.1 per cent.

American equity markets were down amid rising worries that more countries in Europe could face severe government restructuring in the face of persistently high debt loads.

The Dow Jones Industrial Average was down 58.88 points to 12,446.88 while the broad-based Standard & Poor's index slipped 5.85 points to 1,313.64.

Asian tumble

Although not stunning, the performance of North American equity markets was in marked contrast to the hammering experienced by Asian exchanges.

Hong Kong's Hang Seng slid 2.2 per cent to 21,854.91, South Korea's Kospi retreated 2.1 per cent to 2,111.05 and the Shanghai Composite Index lost 1.2 per cent to 2,768.28.

Japan's Nikkei 225 stock average shed 1.5 per cent to 9,915.00.

Expectations that Japan's central bank may end a two-day policy meeting with a downgrade of its growth estimate for fiscal 2011 following the March earthquake and tsunami disasters deepened the gloom.

In Australia, the European debt worries overshadowed dissatisfaction with the government's new carbon tax proposal. The S&P/ASX 200 dropped 1.9 per cent to 4,495.40.

"What I think is really upsetting people is what's happening in America and Europe," said RBS Morgans private client adviser Bill Bishop. "The European credit situation has got worse and the European and U.S. banks took a big shellacking in the stock market," he said.

One bright spot was Macarthur Coal shares, which surged 37 per cent in Sydney after U.S. mining giant Peabody Energy made a takeover bid for the Queensland company in tandem with the world's largest steel maker, ArcelorMittal.

News Corporation's main stock continued its downward spiral, shedding 4.1 per cent in reaction to the News of the World phone hacking scandal.

Debt crisis might be spreading

Shares in Europe and the U.S. extended losses Monday amid signs that Europe's debt crisis might be spreading beyond the three countries that already have gotten rescue packages.

Concerns are growing that Spain and Italy might also need bailouts to manage their tremendous debt loads.

On Monday, the Milan Stock Exchange plunged nearly four per cent — the second big drop in a row — and the spread between the country's 10-year bond yield and the German benchmark hit a record high.

Spain's IBEX 35 index tumbled 2.7 per cent.

That led to a dismal start to the week on Wall Street, where the Dow Jones industrial average had its biggest percentage drop in nearly a month. It fell 151.44 points, or 1.2 per cent, to 12,505.76. And after closing one point off its 2011 high late last week, the Nasdaq composite fell 57.19, or 2 per cent to 2,802.62.

In Toronto, the S&P/TSX composite index closed down 191.95 points, or 1.4 per cent, to 13,179.75.

Rating agencies warn that even a voluntary involvement in a rescue package by private banks will likely be seen as a partial default of Greece on its massive debts.

The uncertainty has led investors to buy U.S. treasuries and push up the value of the greenback.

On Monday, the Canadian dollar fell 0.89 of a cent to 103.20 cents US.

Euro 'likely to remain under downward pressure'

Overnight, Europe's malaise weighed on the euro, which fell more than one per cent to $1.4048. Some have said Europe's debt crisis calls into question the future of the common currency, but the slide also reflects investors' preference to park their money in the dollar, which is considered relatively safe in times of uncertainty.

"The euro is likely to remain under downward pressure in the European trading session as the ongoing eurozone debt crisis continues to intensify," said Lee Hardman, a currency economist for Bank of Tokyo-Mitsubishi UFJ.

In Asia, the euro fell further, to $1.3967. The dollar fell to 80.12 yen from 80.30 yen.

News that the global economy is still struggling dragged. oil prices lower.

Benchmark oil for August delivery was down 60 cents to $94.55 a barrel in electronic trading on the New York Mercantile Exchange.

The contract fell $1.05 to settle at $95.15 on Monday.