Global equity markets and the euro slid today after the European Central Bank's buying of sovereign debt failed to stem a euro zone bond sell-off and to calm fears the debt crisis was spreading to France.
Wall Street opened lower and European shares slipped as investors doubted the ability of governments in the euro zone to contain the crisis.
French borrowing costs rose, with the yield premium of the French 10-year government bond over German Bunds rising to a new euro-era high near 2 per cent.
France has become the latest target of investor unease as a solution to the region's two-year debt crisis remains elusive. Contagion from the crisis has spread to other top-rated sovereign issuers such as the Netherlands and Austria.
European shares and the bonds of weaker euro zone countries initially recovered as former European Commissioner Mario Monti formed a new technocratic government in Italy.
"It is clear that they (Europe) have a severe liquidity crisis developing and it is becoming more and more clear that they are going into a severe recession," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"They have got to get their act together and resolve this issue or this recession is going to be worldwide."
The pan-European FTSEurofirst 300 index of top European shares was down 0.2 per cent at 968.48.
The Dow Jones industrial average was down 133.27 points, or 1.10 per cent, at 11,962.89. The Standard & Poor's 500 Index was down 13.64 points, or 1.08 per cent, at 1,244.17. The Nasdaq Composite Index was down 25.92 points, or 0.96 per cent, at 2,660.22.
Analysts called a 0.1 per cent drop in the US Consumer Price Index in October a nonevent for markets.
US consumer prices fell last month for the first time in four months as Americans paid less for new cars and petrol, but prices outside of food and energy posted a slight increase, the Labor Department said.
The dollar extended gains versus the euro after the inflation data.
The euro was down 0.38 per cent at $1.3479 and the US Dollar Index, a basket of major trading-partner currencies, was up 0.40 per cent at 78.187.
"Obviously the debt crisis is front and centre but the data here is improving, which should provide a bit more tail wind for the dollar," said Omer Esiner, senior market strategist at Commonwealth Foreign Exchange in Washington.
US Treasuries prices gained as Europe's government debt market was again hit with a sell-off. Oil was mixed.
"There's a focus on sovereign debt yields, they are still a concern and they are driving prices," said Olivier Jakob at Petromatrix in Zug, Switzerland.
Brent crude fell $1.49 to $110.69 a barrel, while US oil rose $2.38 to $101.75.
Reuters
