World shares and euro gain after recent losses

 

The euro rose against the dollar on Tuesday, but worries over Europe's debt troubles continued to dampen sentiment and European stocks dropped.

U.S. Federal Reserve Chairman Ben Bernanke's reassuring comments on the state of the U.S. economy helped support U.S. stocks, but a report by Fitch Ratings that the UK faced a "formidable" fiscal challenge pushed European stocks to near two-week closing lows.

Risk-averse investors streamed into gold, sending prices for the precious metal to a record dollar high amid fears that euro zone credit contagion could stunt global economic growth.

Bernanke said the U.S. economy seemed to have enough momentum to avoid a "double-dip" recession, while European leaders were committed to ensuring the survival of the euro and had enough money to meet obligations of heavily indebted member nations.

Still, traders remained anxious about debt levels in several euro zone countries, as Portugal, Italy and Spain prepared to sell new bonds this week. It will be the first sale by Spain since a credit ratings downgrade.

"Markets remain under pressure," said Peter Dixon, an economist at Commerzbank. "Until we see any indications that uncertainty has lifted, the prospects of any decent rally in the European markets appears distant."

The pan-European FTSEurofirst 300 index of top shares provisionally closed down 1 percent, falling for the third consecutive session, but the MSCI's all-country world stock index gained 0.2 percent with support from U.S. stocks.

The Dow Jones industrial average was up 67.42 points, or 0.69 percent, at 9,883.91. The Standard & Poor's 500 Index was up 4.96 points, or 0.47 percent, at 1,055.43. The Nasdaq Composite Index was down 11.11 points, or 0.51 percent, at 2,162.79.

DEBT WORRIES

The euro rose above $1.20 against the dollar a day after hitting its lowest level since March 2006, and pared losses against the Swiss franc as traders cited possible intervention by the Swiss National Bank.

The euro was last up 0.44 percent at $1.1966.

The pound fell after Fitch urged Britain to cut its deficit, the latest in a series of concerns expressed by rating agencies about the state of government finances in Europe, encompassing Greece, Spain, Hungary, and Ireland.

Solving debt problems implies heavy budget cuts at a time when many believe spending is needed to help keep economic recovery on track.

Meanwhile, safe-haven U.S. Treasury debt prices were lower ahead of the $36 billion worth of three-year notes at 1 p.m. EDT (6 p.m. British time), followed by offerings of 10- and 30-year bonds later in the week.

The benchmark 10-year U.S. Treasury note was down 9/32, with the yield at 3.1784 percent. The 2-year U.S. Treasury note fell 2/32, with the yield at 0.75 percent. The 30-year U.S. Treasury bond was off 18/32, with the yield at 4.1139 percent.

Spot gold prices rose above $1,250 an ounce, a record high, benefiting from fears the European sovereign debt crisis may spread, weighing on a global recovery.

"It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven" said Commerzbank analyst Daniel Briesemann.