Stocks Lower: Portugal and Job Numbers Press Market Lower

Europe's debt crisis and mildly disappointing U.S. jobs data weighed on stocks Monday, with reports claiming Portugal is under mounting pressure to accept an aid package to prevent contagion to other countries. In Europe, the FTSE 100 index of leading British shares closed down 28.03 points, or 0.5 percent, at 5,956.30. Bigger losses were posted in the markets of euro countries, with Germany's DAX falling 90.78 points, or 1.3 percent, to 6,857.06 and the CAC-40 in France ending 63.55 points, or 1.6 percent, lower at 3,802.03.

The losses weren't just confined to Europe, though -- on Wall Street, the Dow Jones industrial average was down 65.92 points, or 0.6 percent, at 11,608.84 around midday New York time, while the broader Standard & Poor's 500 index fell 5.56 points, or 0.4 percent, to 1,265.90. "There is still an air of caution following the worse-than-expected U.S. employment numbers on Friday and... investors are mindful that the risk of another European sovereign debt crisis has not gone away," said Yusuf Heusen, a sales trader at IG Index. Fears that Portugal was heading towards a bailout, like Greece and Ireland before, were acute in early trading in Europe. At one stage, the yield on Portugal's ten-year bonds rose nearly half a percentage point to 7.18 percent, before falling back to 6.94 percent on speculation that the European Central Bank was propping up Portugal's bond market -- buying bonds helps lower the yield. "According to market talk the ECB bought bonds issued by Portugal directly from banks this morning following a rocky start," said Andrew Wilkinson, senior market analyst at Interactive Brokers. "As usual the remedy worked and sent the bears into hibernation for now."

Despite the modest pullback, the cost Portugal is facing to service its debt is prohibitively high. Many think that even current rates are unsustainable in the medium-term and that the country will have to join Greece and Ireland in getting massive financial help from its partners in the European Union and the International Monetary Fund.
A test will be an auction of euro1.25 billion in three year and nine year bonds on Wednesday and how much Portugal will have to pay to get investors to effectively lend it money. On Thursday, Spain and Italy are also scheduled to sell bonds and the big worry in Europe's capitals is that Spain, in particular, will be dragged into the mire.

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