World Business

Euro at 4-year lows while stocks drop on risk flight

(Agencies)
Updated: 2010-06-07 15:21

The euro sank to four-year lows on Monday as stocks and commodities fell after disappointing US jobs data and angst about euro zone debt problems fed fears the world economy may falter in its recovery.

Sharp drops in prices of risky assets across the board heightened market volatility and further convinced already nervous investors to play cautious and buy into safe havens.

"The background environment isn't good, and that's the bottom line. Investors need to be buying things that are quality," said Alex Boggis, a fund manager at Aberdeen Asset Management, which manages about $240 billion in investments, adding that investors should only buy stocks of firms with strong cash flows.

The euro, which has turned into the barometer for investor risk appetite in recent weeks after Greece's debt crisis, fell below $1.1900 to its lowest in more than four years.

Worries over the euro zone's debt problems grew after Hungary's government said the country might suffer a Greece-style debt crisis, giving investors a reason to sell the common currency.

Although analysts said the controversial remarks from Hungary's government were politically motivated, and that Hungary's economic fundamentals were far better than Greece's, investors paid no heed.

Against the yen, the euro skidded below 108.33 yen ($1.19) to an eight-year trough.

US jobs data that showed the labor market in the world's No 1 economy was not healing as well as hoped gave investors another reason to cut dangerous bets in an uncertain market.

Many investors had hoped strong US job figures would offset persistent concerns about Europe's sovereign debt problems. Though a global economic slowdown may now be looming, few economists believe it will sink back into a recession.

Japan's Nikkei index .N225 and the MSCI index for Asian stocks outside Japan .MIAPJ0000PUS shed 3.8 percent each.

"There's a real sense of investors taking their money out of risky assets," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

S&P futures fell 0.7 percent, pointing to further losses in US stocks later in the day, having already fallen on Friday to their lowest since February.

The Australian dollar and the South Korean won, both of which are extremely vulnerable to turns in demand for risk, also suffered.

The Australian dollar struggled at $0.8118. The won fell to a two-week low at 1,237.4/8.6 per dollar.

Assets with safe-haven appeal benefited from the scramble out of from risk. Investors sought safety in the liquidity of US Treasuries, further adding to demand for the US dollar.

The US dollar index .DXY hit a 15-month high of 88.7.

The threat to the recovery and a firmer US dollar fed pressures on commodity prices. Oil dropped nearly 2 percent to $70.28 a barrel by 0452 GMT and Shanghai copper, zinc and aluminum futures sank across the board.

US economic data showed on Friday that the recovery in the labor market was not as strong as hoped, with hiring by US private employers slowing sharply in May.

Although some analysts said cautious hiring plans of US firms did not herald another recession in the US economy, the world's largest, stock investors paid no heed. Major US stock indexes fell by up to 3.6 percent.