SINGAPORE (Reuters): Asian shares and the euro fell on Monday as investors reacted cautiously to reports that European leaders were working on new ways to stop the fallout from the euro zone sovereign debt crisis wreaking more damage on the world economy.
Gold extended losses, after sliding a record $100 an ounce on Friday as safe haven seekers abandoned the precious metal in favour of the dollar and U.S. Treasuries.
Trading in the euro was volatile, as hopes that EU leaders, under pressure from tumbling markets, might agree on bolder steps to ring-fence heavily indebted Greece, Portugal and Ireland were offset in investors’ minds by a lack of detail about the proposals.
“We believe this type of plan would be seen as a credible solution to the crisis,” said Warren Hogan, chief economist at ANZ Bank in Sydney.
“However, this plan is still only in the ‘rumour’ stage, and it may face some tough hurdles in order to be passed by all EU authorities, indeed headlines are already suggesting some German dissent.”
MSCI’s broadest index of Asia Pacific shares outside Japan fell 1.8 percent to its lowest level in about 16 months, after dropping 7.5 percent last week. Tokyo’s Nikkei , fell 2 percent to a six-month low .
After a weekend of being told by the United States, China and other countries that they must get more aggressive in their crisis response, European officials focused on ways to beef up their existing 440 billion euro ($595 billion) rescue fund.
But deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe’s banks and help struggling euro zone member countries.
Global equity markets have been tumbling since late July, hammered by twin fears of renewed recession in the United States and worries that Europe’s intractable debt woes could trigger another full-blown banking crisis.
MSCI’s Asia ex-Japan index has fallen 28.6 percent since its April high for the year, while the All-Country World index is 23 percent below its May peak.
The euro, which was threatening the $1.50 level in May, has also been under heavy pressure in recent weeks amid growing expectations among policymakers, investors and market economists that Greece may have to default on its debts.
“The lurch lower in risk appetite can only reflect a growing fear that policymakers will be incapable of acting in time or with sufficient potency to turn things around,” said Hervé Goulletquer, analyst at Credit Agricole.