Tue Jun 5, 2012 2:45pm EDT


* Spain signals distress over rising borrowing costs * G7 agrees to work together to deal with debt crisis * U.S. services sector's growth picks up modestly in May By Wanfeng Zhou NEW YORK, June 5 (Reuters) - The euro fell and German bondprices gained on Tuesday as the euro zone's debt crisis showedsigns of escalating after Spain said it was being shut out ofcredit markets. The treasury minister of Spain, the euro zone'sfourth-largest economy, said high borrowing costs meant creditmarkets were closing to his country, and he made an appeal tothe European Union to help Madrid recapitalize its debt-ladenbanks. Finance ministers from the Group of Seven major economiesdiscussed progress toward financial and fiscal union in Europeafter an emergency call but made no joint statement. World stocks advanced, with the major U.S. stock indexesbolstered by data showing the U.S. services sector grew at aslightly faster pace in May as new orders improved. In Europe, shares advanced in a nervous, choppy session asinvestors bought beaten-down shares on hopes for global centralbank policy action to revive the economic recovery. "None of these meetings have produced anything meaningful,and with debt burdens piling up across the globe, I remainhighly doubtful that anything substantive will be implemented,and anything that falls short of fiscal union in Europe willallow the crisis to proliferate," said Christopher Vecchio,currency analyst at DailyFX in New York. The MSCI world equity index rose 0.6 percentto 292.79 points. On Wall Street, stocks staged a modest advance after earlierskating around the break-even point. The Dow Jones industrialaverage added 28.72 points, or 0.24 percent, to12,130.18. The Standard & Poor's 500 Index rose 6.81points, or 0.53 percent, to 1,284.99. The Nasdaq Composite Index gained 19.06 points, or 0.69 percent, to 2,779.07. "Europe's obviously a concern, but we've been selling offfor weeks on that," said Peter Boockvar, equity strategist atMiller Tabak & Co. in New York. "A slightly better-than-expectedservices number, which makes up the majority of the U.S.economy, is a sigh of relief in the face of a lot ofbearishness." The euro zone's blue-chip Euro STOXX 50 indexclosed up 0.4 percent, with volumes thinned by a second day ofUK public holidays. After Tuesday's G7 finance ministers' conference call,investors are waiting for a European Central Bank policy meetingon Wednesday, Federal Reserve Chairman Ben Bernanke's testimonybefore the U.S. congressional Joint Economic Committee onThursday, and the Greek elections and G20 meeting in Mexico,which are both on the weekend of June 17. Funding options are narrowing for companies across theglobe, as issuers are shut out of markets due to risk aversionfor weaker credits and demand for spread that is driving costssharply higher. EURO ZONE IN DECLINE The euro, which early in the day hit a one-week high of$1.2542, fell 0.4 percent to $1.2440. The risk premium that investors demand to hold Spanish10-year debt rather than safe-haven German bonds hit a euro-erahigh of 548 basis points on Friday on concerns that Spain willeventually be forced to seek a Greek-style bailout. Spain will test the market on Thursday by issuing between 1billion euros ($1.24 billion) and 2 billion euros in medium- andlong-term bonds at auction. Adding to the bearish sentiment, all of the euro zone'smajor economies are now in various states of decline, accordingto business surveys that heaped more pressure on Europe'sleaders to stop the region from becoming the center of a newglobal crisis. The dollar rose 0.5 percent to 78.74 yen, hitting asession high after Japan's finance minister, Jun Azumi, said astrong yen is damaging Japan's economy. The price of Brent July crude seesawed and lastslipped 18 cents to $98.67 a barrel, coming back from a 16-monthlow of $95.63 on Monday. U.S. July crude gained 31 centsto settle at $84.29 a barrel. Spot gold eased to $1,616 an ounce. The benchmark 10-year U.S. Treasury note shed6/32 in price with the yield at 1.551 percent as traders bookedprofits on a rally that pushed yields to historic lows. Thebenchmark 10-year note's yield touched an all-time low of 1.44percent on Friday. "Treasuries had rallied so much over the last week and lastmonth that we are just seeing some of that taken back yesterdayand today," said Eric Stein, vice president and portfoliomanager at Eaton Vance Investment Managers in Boston.
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