Markets: Nervy Investors Quit Shares

Investors worldwide sold shares amid yesterday and overnight amid growing concerns that global economic growth has stalled as well as a surge in new tensions in the eurozone.

Forgotten in the sell-off was the temporary euphoria Monday morning in Asia about the US debt ceiling agreement.

Gold bounced over $US1,660 an ounce, despite a rise in the value of the US dollar as big investors sought the protection of the usual safe havens of US government debt.

In fact the metal ended trading at a new high of $US1,666.30 an ounce, up 1.3% on the day.

It rose above $UDS1,667 an ounce in after hours trading.

Extending losses suffered Tuesday on signs that global manufacturing was slowing, Japan's Nikkei Stock Average tumbled 2.1% in Tokyo, while Australia's S&P/ASX 200 index skidded 2.3% and South Korea's Kospi sank 2.8%.

Hong Kong's Hang Seng Index dropped 2% and Taiwan's Taiex gave up 1.6%, but China's Shanghai Composite fell 0.1% after an earlier gain to be the best performing market in the region. (Not surprising given the economy is the best performing).

The sell-off continued in European markets for another day with losses of 1% to more than 2% reported.

But after opening lower, Wall Street clawed back most of those losses to end in the green for the first time for nine days.

The Dow was up 0.25%, the S&P 500 was up 0.5% and Nasdaq ended 0.9% higher on the day (really in the last hour).

But the gain was fitful, not uniform or strong and due more to bargain hunting than great conviction.

The Australian market closed at the lowest level since August 28 last year.

The slump in global manufacturing (except in China where it seems to be steadying), surging interest rates in the eurozone for Spain and Italian debt (and a small rise in French debt yields) and the slide in the already weak US economy sent investors scurrying for safety.

Global surveys of the service sector were also weak, surprisingly so in parts of Europe and the US.

US consumers have stopped spending and are trying to save and economists now fear Friday's jobs report for July might be a disaster.

While the Australians stockmarket was sold off for another day, Australian government bonds fell to their lowest level in more than 10 years at around 4.64% for the 10 year security.

That's under the RBA's cash rate of 4.75% and a sign of the nervousness of local and international investors.

Yields on US 10 year debt hit 2.62% (the lowest for a year). In Germany and the UK they fell to new lows, despite falls in equity markets as well.

Ten year bond yields fell to 2.60% Wednesday in US trading.

German 10-year yields dipped below the domestic rate of inflation briefly on Tuesday (2.5%) for the first time since at least 1960. That continued yesterday.

Britain's benchmark borrowing costs, as measured by 10-year gilt yields, fell to lows not seen since 1946. US 10-year yields hit year-lows of 2.62% Tuesday.

The US dollar rose against all major currencies, oil and other commodities dropped, but gold surged to new record in New York trading and then in electronic trading in Asia yesterday.

The Australian sharemarket lost another $A30 billion as investors took flight from gathering gloom at home and abroad.

That's after $19 billion in value was lost in Tuesday's sell-down.

The continuing rise in the price of gold came despite an improvement in the dollar index.

Yields on 10 year Spanish and Italian bonds peaked at 6.45% and 6.25% on Tuesday.

A big worry is the sudden upsurge in volatility about Spain and Italy.

The premiums Madrid and Rome pay to borrow over the key German 10 year bond reached euro-era highs Tuesday of 4.04% and 3.84%, huge premiums and very destabilising.

They were again at or near record levels on Wednesday.

Traders said that both the yields and premiums are approaching levels that pushed Greece, Ireland and Portugal into bail-outs.

The premium France pays to borrow over Germany also hit a euro-era high of 75 basis points (0.75%) which is a worry seeing France is a huge, AAA-rated economy.

That's because investors are scared that with Spain and Italy under pressure they might not be willing or unable to contribute to the European bailout mechanism, meaning the contributions from Germany and France will rise sharply into the hundreds of billions of euros.