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Spain debt costs rise despite stimulus

Friday, July 06 10:31:54

Policy loosening by a trio of major central banks failed to impress investors today, pushing Spanish and Italian borrowing costs close to levels reached before last week's EU summit took measures designed to ease pressure on them.

China, the euro zone and Britain all loosened monetary policy on Thursday, signalling growing alarm about the world economy. But to little avail.

The euro was nursing heavy losses at $1.2377, near a five-week low of $1.2364, while Brent crude oil was down more than 70 cents a barrel at $99.98.

A U.S. jobs report, due at 1230 GMT, is the day's big number and will give a guide to the extent of damage the euro zone's debt crisis is inflicting on the U.S. economy and whether the Federal Reserve may consider more action when it meets next at the end of the month.

"The U.S. jobs report will be the focal point today as a weak figure could signal additional stimulus by the Federal Reserve in their next meeting," said Nam Truong, a dealer at Capital Spreads in London.

Thursday's robust U.S. private employment data could have dampened such hopes, but a Reuters poll showed expectations were for non-farm payrolls to expand by just 90,000 jobs in June. Ten-year Spanish government bonds yielded 6.90 percent in early trading, a level which is not sustainable for Madrid indefinitely. Italian yields climbed to just shy of 6 percent.

The pan-European FTSEurofirst 300 index was down 0.2 percent at 1,042.80 points in early trade, but was still up more than two percent for the week. Reflecting the impact of the European Central Bank's decision to cut lending rates to 0.75 percent and deposit rates to zero, German government bond yields were weaker with the yield on two-year debt briefly turning negative.

A weaker session in Asia, where Chinese growth worries are on the rise ahead of Q2 GDP data next week, pushed the MSCI world equity index down 0.1 percent to 314 points, though it is on track for a gain of 0.6 percent this week.