Greek fears amplify - world shares, euro weaken overnight

Stocks fell in Europe and the US and the euro weakened amid concern Europe's debt-crisis is worsening and America's economic recovery is running out of puff.

The MSCI All-Country World Index declined 1.7 per cent, with European benchmark indexes showing the biggest declines. Germany's DAX 30 sank 2 per cent and France's CAC 40 shed 2.1 per cent.

Prime Minister George Papandreou's government met yesterday to try to advance new austerity measures and raise funds selling assets including ports and its stake in Hellenic Postbank.

Greece is struggling to meet repayments on last year's financial rescue and Bloomberg reported the European Union may seek €15 billion ($NZ26.6b) of asset sales by the end of next year as a condition of providing a new three-year loan package.

The yield on Greek 10-year bonds soared 49 basis points to a record 17 per cent as bonds tumbled across the region.

In a setback to reform, Spain's Prime Minister Jose Luis Rodriguez Zapatero's Socialist party faced a backlash over its attempts to rein in the government deficit with losses at local elections.

Fitch Ratings changed the outlook on Belgium's AA+ credit rating to 'negative' from 'stable.'

The euro fell as low as $1.3968, the first time it has fallen below $1.40 since March 18. It was recently at $1.4063. The European currency sank to a record low 1.23235 Swiss francs.

Adding to the region's gloom were signs that growth in Europe's manufacturing and services industries slowed more than expected this month. Markit Economics said its index euro-area purchasing managers for the two sectors fell to a seven-month low of 55.4 in May from 57.8 last month.

European airlines paced the slide in the region's stocks. Ryanair dropped 5.3 per cent after announcing capacity cuts, while Air France- KLM Group declined 4.5 per cent amid signs that ash from Iceland's latest volcano could disrupt trans-Atlantic traffic.

On Wall Street, the Standard & Poor's 500 Index shed 1 per cent to 1319.56 in afternoon trading and the Dow Jones Industrial Composite fell 0.9 per cent to 12400.64. DuPont, Caterpillar, Alcoa, Intel and Boeing were among decliners.

"People will be pulling money out of riskier assets," Paul Zemsky, head of asset allocation at ING Investment Management, told Bloomberg.

A Federal Reserve Bank of Chicago national index sank to -0.45 last month from 0.32 in March, pointing to below-trend economic growth in the US.

Copper dropped on the New York Mercantile Exchange after a Chinese purchasing managers' index compiled by HSBC Holdings Plc and Markit Economics fell to 51.1 this month, a 10-month low.

Copper futures for July delivery fell 3.2 per cent to US$3.9915 a pound in New York.

Crude oil weakened as the greenback strengthened and Europe's debt woes stoked concern global demand may slow. Crude for July delivery fell 2.4 per cent to settle at US$97.70 a barrel on the Comex.

By contrast, gold rose to its highest levels in almost two weeks as investors were attracted to the precious metal as a haven from other asset classes.

Spot gold rose as much as 0.7 per cent to US$1,517.49, a two-week high, and was recently at US$1,513.40 an ounce.

The Dollar Index, which tracks the greenback against six major currencies, rose 1 per cent. The yield on US 10-year Treasuries fell 2 basis points to 3.12 per cent.

- BusinessDesk

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