Spain's borrowing costs climb

Stocks and US equity futures erased gains as Spain's three-month borrowing costs more than doubled at an auction and concern that European leaders are running out of options to solve the debt crisis sent French and Italian yields higher.

The Stoxx Europe 600 Index slipped 0.1 per cent at 8.17am in New York, after earlier climbing 1 per cent. Standard and Poor's 500 futures lost less than 0.1 per cent. Spain's two-year note yield rose 14 basis points to 5.73 per cent, with France's yield nine basis points higher. Copper snapped a three-day decline and gold rebounded from a one-month low.

The uncertainty over the euro zone crisis continued to impact on borrowing costs, as Spain sold three-month bills at a yield of 5.11 per cent, more than double the 2.292 per cent yield the last time the debt was offered on October 25th. Michael Meister, finance spokesman for German chancellor Angela Merkel's Christian Democratic party, said "we haven't any new bazooka to pull out of the bag".

The yield on Spain's 10-year bond rose four basis points. The government also offered six-month bills at an average yield of 5.227 per cent, compared with 3.302 per cent last month.

The extra yield investors demand to hold Belgian 10-year bonds instead of benchmark German bunds increased 15 basis points after Belgium's coalition talks were suspended as Elio Di Rupo offered to resign from leading the negotiations.

Stocks gained earlier after Standard and Poor's and Moody's Investors Service kept the US's credit rating unchanged after Congress failed to reach an agreement, setting the stage for $1.2 trillion in automatic spending cuts.

"When you look at valuation measures for global equities, they're all running well below historical averages," Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors, said in a Bloomberg Television interview. "Very tough economic conditions are already priced in, probably something approaching a global recession."

About $3.3 trillion has been wiped off global equity values this month amid concern Europe's credit crisis is worsening.

Three shares advanced for every two that declined in the Stoxx 600.

Antofagasta Plc and Xstrata Plc led a rally in mining companies, both climbing more than 1 per cent. Thomas Cook Group Plc tumbled 67 per cent as Europe's second-largest tour operator said it held talks with banks on financing.

The S&P 500 slid to its lowest level since October 7th yesterday. Hewlett-Packard Co fell 1.6 per cent in pre-market trading after forecasting first-quarter profit and fiscal 2012 earnings that missed analysts' estimates.

Bloomberg