By Koh Gui Qing
July 19, 2010 8:48 AM EDT
The euro extended losses on Monday, pulling further away from two-month highs, after Moody's cut Ireland's credit rating, highlighting the fragility of Europe's fiscal health.
The euro quickly fell to the day's lows of $1.2868 after the rating agency cut Ireland's government bond ratings to Aa2, from Aa1, saying the country had suffered a "significant loss of financial strength."
The move came as markets are anxiously awaiting the results of stress tests on European banks due out on Friday, and after the IMF and EU suspended a review of Hungary's funding programme at the weekend, saying the government must take tough action to cut its budget deficit.
The downgrade added to the gloom in stock markets, which fell in Europe and Asia as a sharp drop in U.S. consumer sentiment fueled worries that its economic recovery may be stalling.
The FTSEurofirst 300 index of leading European shares fell 0.4 percent in early trade, while the MSCI index for Asian stocks outside Japan dropped 1.2 percent, its worse daily performance this month, as investors sold riskier assets.
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The Japanese market was shut on Monday for a holiday.
"The key issue driving the market at the moment is slower global growth," said George Clapham, head of equities at Arnhem Investment Management in Australia.
Investors who believed the world economy is on shaky ground got more ammunition for their arguments on Friday after U.S. data showed consumer prices fell for the third straight month in June while consumer sentiment dropped to a near one-year low, the latest in a spate of weak reports.
Major U.S. stock indexes slumped as much as 3.1 percent, with the selling spilling over into Asia on Monday.
Reflecting investor anxiety about sluggish economic growth, sub-indices for the MSCI Asia ex-Japan share index showed shares in banks and firms that sold non-essential consumer goods were the worse performers.
The financial and consumer discretionary sub-indices were down 1.3 percent each.
In Hong Kong, consumer goods exporter Li & Fung fell 2.6 percent, while Europe-focused retailer Esprit Holdings was down 2.4 percent.
But some investors said that while the U.S. economy is no doubt weak, worries that it may fall back into recession may be overdone.
"It's slowing but it's very unlikely to get a double-dip recession," said Khiem Do, head of the Asia multi-asset group at Baring Asset Management, which oversees $50 billion.
Weekly Roundup: Asian Markets Fall On Weak China Data And Euro Zone Debt Concerns
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Asian Markets Fall On China And Euro Zone Concerns
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Weekly Roundup: Asian Markets Fall On Weak China Data And Euro Zone Debt Concerns
