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Financial Focus

ANGELA MERKEL yesterday called on Europe to build a “political union” to underpin the euro and help the continent emerge from its “toughest hour since the second world war”. Merkel said a radical change in thinking was needed throughout Europe to overcome the Eurozone debt crisis.

THE EXTRA cost for Spain to borrow in comparison to Germany reached a euro-era high yesterday amid signs that Madrid was being sucked further back into the Eurozone crisis. Spanish 10-year bond yields also surged above 6% for the first time since early August as they traded higher in line with moves in Italian debt.

GREEK Prime Minister Lucas Papademos told lawmakers that keeping the euro is the only way forward after German Chancellor Angela Merkel’s party voted to offer euro states a way to leave the currency area.

THE CHINESE financial system faces “a steady build-up in vulnerabilities” that require the government to relax its grip on banks, the exchange rate and interest rates, the IMF said in its inaugural evaluation of China’s financial sector.

REPORTS this week are expected to signal that US retail sales rose and manufacturing accelerated in October. This, combined with an increase in the Standard & Poor’s 500 Index for five of the past six weeks, has added to US consumer confidence, which topped forecasts at the end of last week.

MARKETS:

ASIAN stocks fell for the first time in three days after a surge in Italian and Spanish borrowing costs intensified concern that Europe’s debt crisis will worsen. The MSCI Asia Pacific Index slumped in Tokyo, after a two-day, 2.4% gain and Standard & Poor’s 500 Index futures also retreated.

EUROPEAN equities are likely to fall for a second straight day on Tuesday on growing concerns that higher bond yields in some euro zone countries will hamper their borrowing abilities and further deepen the region’s two-year old debt crisis.

CURRENCIES:

THE EURO fell for a second day before a report forecast to show German investor confidence fell to a three-year low as Europe’s debt crisis threatens to curb economic growth. The 17-nation currency dropped against 10 of its 16 major counterparts as Spain prepares to sell up to 4bn of bonds on Thursday after Italy’s borrowing costs surged to the highest level since 1997 at a note auction.

ENERGY:

OIL fell for a second day in New York as concern that Europe will struggle to contain its debt crisis countered signs of declining fuel stockpiles in the US, the world’s largest crude consumer. Oil in New York has climbed 30% since falling to a one-year low on October 10th.

COMMODITIES:

Speculators increased wagers on rising commodity prices to a seven-week high as signs of resilient US growth boosted prospects for demand. The outlook for commodity demand has recovered since September, when the GSCI tumbled 12%, the biggest monthly drop since November 2008, on concern that Europe’s debt crisis would send the global economy into another recession.

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