European shares and the euro fell on Tuesday as finance chiefs from the world's major nations prepare to push Europe for faster action on its growing debt crisis and Spain said the euro zone's fourth biggest economy was shut out of the credit markets.
The single currency, which early in the day hit a one-week high of $1.2543, fell 0.5 percent to $1.2442 when Spain's Treasury Minister highlighted his concern over high borrowing costs just two days before a planned debt auction.
The risk premium investors demand to hold Spanish 10-year debt rather than German equivalents hit a euro-era high of 548 basis points last week on concerns that Spain's fragile banking system and heavily indebted regions would eventually force it to seek an international bailout.
Spain's problems, and the threat they hold for the rest of the world, will be discussed in a teleconference by finance ministers and central bankers from the United States, Canada, Japan, Britain, Germany, France and Italy (the G7) later on Tuesday.
“I think that the G7 is going to put a lot of pressure on Europe to accelerate the treatment of the banking crisis, which means to increase the pressure on the Spanish Government,” said Eric Chaney, Chief Economist for the AXA Group.
The intensification of the euro zone crisis coupled with weaker-than-expected data from the US and China has been putting intense pressure on the prices for all riskier assets.
In European equity markets, where share indexes over the past week have been beaten down to 2012 lows, price falls were muted on Tuesday as UK markets remain closed for a holiday.
The euro zone's blue-chip Euro STOXX 50 index was down 0.4 percent at 2069.80 points.
“We are in a political environment where the debt crisis, the Greek situation is pushing down the market,” said Oliver Roth, head trader at Close Brothers Seydler.
A batch of fresh business surveys on Tuesday also weighed on sentiment showing the euro zone's private economy was shrinking in May at the fastest pace in nearly three years, with company order books collapsing.
“Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand both in the euro area and further afield,” said Chris Williamson, chief economist at Markit, which compiled the purchasing managers index data.
Earlier, however, the news of the G7 talks did lift MSCI's broadest index of Asia-Pacific shares outside Japan by 1.2 percent, snapping a four-day losing streak, leaving the MSCI world equity index up 0.3 percent at 291.67 points.
Commodity markets were reflecting the darkening outlook for the global economy, with Brent crude prices below $99 a barrel, after briefly hitting a 16-month low of $95.63 on Monday.
Gold inched lower on Tuesday, tracking a weaker euro losing 0.2 percent to $1,615.26 an ounce. - Reuters