Global Shares Slide on Yen Intervention, EU Worries

World equities fell on Monday after commodity shares were hit by a stronger dollar which jumped in the wake of Japanese intervention to weaken the yen, while returning doubts about the EU's plan to solve the debt crisis added to the cautious tone.

U.S. crude futures also fell, by 0.7 percent, as the dollar hit a three-month high, making commodities priced in the greenback more expensive for investors holding other currencies, cooling demand.

The dollar, which had fallen to a record low of 75.31 yen earlier in Asian trade, rose more than 4 percent against to as high as 79.55 yen . It was up 2.9 percent at 77.95 yen.

The dollar has come under pressure as investors cautiously returned to riskier assets such as equities after Europe's leaders laid out a basic framework to tackle the sovereign debt crisis last week.

Japanese Finance Minister Jun Azumi said Japan intervened unilaterally in the foreign exchange market on Monday to counter speculative moves that did not reflect the health of the Japanese economy.

It was the third time this year Japan has been in the market to try and curb the yen's strength.

"If the Bank of Japan wants to avoid the dollar slipping back quickly towards 76 yen very soon they will need to come in again to really make the point," said Niels Christensen, currency strategist at Nordea in Copenhagen.

Noting that the last intervention in early August also had a significant effect on dollar/yen, which then very quickly dropped back down again, he said the authorities might want to avoid that happening this time.

The euro slipped almost 1 percent versus the dollar to $1.4014.

The single currency reached a seven-week high around $1.4247 last Thursday following news of the debt rescue plan, and looked set to end the month up nearly 5 percent for its best monthly performance in just over a year.

But speculation about a possible interest rate cut on Thursday by the European Central Bank could limit its upside for now.


Equities gave back some of last week's gains as the decline in metal prices on a firmer dollar hit mining stocks and banking shares came under renewed selling.

The MSCI world equity index was down 1.2 percent, pulling back from its highest levels in nearly three months hit last week as the European plan to resolve the debt crisis spurred a relief rally.

The pan-European FTSEurofirst 300 index was also 1.2 percent lower, after rising 4.1 percent last week, while emerging stocks shed 0.65 percent.

Jeremy Batstone-Carr, a strategist at Charles Stanley, said doubts about the euro zone plan were also weighing on equities. "Last week we saw a huge rise in equity markets largely on the revelation of a structure of a plan, with no detail on the funding," he said.

Japan told the head of Europe's bailout fund on Monday that it would continue to buy its bonds, but, like fellow potential investor China, did not commit to putting cash into a mooted special purpose vehicle to enhance the rescue fund's firepower.

U.S. and German government bond prices advanced as equities declined and Italian government debt came under renewed pressure, with initial euphoria over Europe's plan to contain the two-year crisis also waning.

Scepticism over whether the struggling government of Prime Minister Silvio Berlusconi can deliver vital fiscal reforms has drawn Italy into the heart of the crisis, driving its borrowing costs up.

German Bund futures jumped 87 ticks to 134.54 while U.S. T-note futures were up 10/32 at 128/12.5/32.

The past week's meeting of euro zone leaders left unclear how the fund -- the European Financial Stability Facility -- was to increase its firepower, a key part of the agreement.

Investors are wary that a summit this week of leaders from the world's 20 leading economies may disappoint with a lack of further details on plans for the rescue fund.

The meeting will also be watched for coordinated efforts or pledges to help stabilise world financial markets, which have been battered this year by the euro zone debt crisis and a slowing world economy.

Spot gold prices fell more than 1 percent as the spike in the dollar spooked precious metals investors. Spot gold was last 1.3 percent down at $1,717.39, having dropped nearly 2 percent earlier.