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While you were sleeping: Banks hit, Spain next?

Dec. 9 (Business Wire) - Bank stocks across Europe and the U.S. fell overnight, hit hard by heightening concerns about the credit quality of global financial firms after Spain was put on watch for a potential downgrade by Standard & Poor’s.

The move by S&P came just days after it put the sovereign debt of Greece on watch, and a day after Fitch Ratings downgraded Greece, putting shares in that country’s banks on a downward trajectory.

Further selling of shares of bank stocks - the National Bank of Greece and Piraeus Bank - in Greece led that nation’s key stock index lower overnight. But the losses didn’t stop there.

Shares in Santander, Fortis and Man Group were among the big losers in the euro region.

S&P said it was concerned about a “pronounced and persistent deterioration” in Spain’s budget, and that there was increased risk the country’s debt rating could be lowered within two years.

The Dow Jones Stoxx 600 Index fell 1% to 241.7 in London, led by equities in Greece, Spain and Austria. The regional gauge has climbed 53% since March 9.

The FTSE 100 Index fell 0.37% to 5203.89, Germany’s DAX Index fell 0.72% to 5647.84 and France’s CAC 40 Index lost 0.74% to 3757.39.

As if to compound the financial sector’s outlook, the U.K. government has imposed a one-time 50% tax on bonuses for bankers and will seek to increase income taxes after elections in 2010 it said in a budget update overnight.

Gilts rallied, reversing declines, after the government said growth would resume next year. The yield on 10-year gilts narrowed 4 basis points to 3.65 at 2:15 p.m. in London, Bloomberg News reported. The pound was little changed at US$1.6244 after erasing earlier losses.

In the U.S., markets were slightly lower at midday. The Dow Jones Industrial Average was 0.01% down at 10,285.06, the S&P500 Index shed 0.26% to 1089.09 and the Nasdaq slid 0.29% to 2166.76.

Pepsico and Texas Instruments, down 3.6% and 2.5% respectively, led the decliners. Among the advancers were Exxon Mobil and Newmont Mining as well as Sprint Nextel.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 0.55% to 23.56.

The euro was up 0.2% at US$1.4734, having swung between a low of US$1.4670 and a peak of US$1.4782 according to Reuters data.

The dollar index, which tracks the greenback against six major currencies a currency, was down 0.4% at 76.014, having risen as high as 76.331, its strongest since early November.

U.S. Treasuries were flat ahead of the auction of US$21 billion of 10-year notes. Benchmark 10-year note yields were 0.1 percentage point higher at 3.39%, according to BGCantor Market Data.

The spread between yields on 2-year and 30-year Treasuries touched 366 basis points today. The last time the spread was so large was 1992, when the Federal Reserve cut interest rates to bolster growth after a recession, Bloomberg News said.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 1.1% to 268.89.

Both oil and gold rallied overnight.

Oil got a boost from an unexpected drop in U.S. crude oil inventories.

Data from the Energy Information Administration showed commercial U.S. crude stockpiles fell 3.8 million barrels to 336.1 million barrels. The EIA data bolstered data from the American Petroleum Institute released on Tuesday that crude inventories in the world's top oil consumer fell 5.8 million barrels last week.

U.S. crude for January delivery was up 60 cents per barrel at US$73.22 by 1600 GMT (11 a.m. EST), having hit an earlier session high of US$73.87. The contract fell US$1.31 on Tuesday London Brent crude gained 3 cents to US$75.22.

Gold rose as the U.S. dollar rallied. Spot gold was bid at US$1144.95 an ounce at 1600 GMT,against US$1129.30 late on Tuesday.

(Business Wire)

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