Irish debt worries ease, euro up, stocks fall

Irish debt concerns and the potential for Chinese rate hikes to fight off inflation knocked stocks, bonds and commodity prices lower on Friday as investors booked profits heading into the weekend.
U.S. stocks were off 1% after five straight weekly gains as commodity and energy shares took a beating on concerns that changes in Chinese monetary policy might slow the pace of its voracious appetite for raw materials.
The euro, however, was given a reprieve, rising from six-week lows as European leaders reiterated to bondholders they would not be forced to take losses in the event of a new euro zone bailout.
"The fact that euro zone officials said Irish bond holders don't have to take a haircut on their existing positions is supportive for the euro," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.
U.S. Treasuries' prices fell sharply after the first day of purchases by the U.S. Federal Reserve as part of its new $600 bln bond-buying program to stimulate the U.S. economy.
"Bears are still in charge," said Lou Brien, market strategist at DRW Trading in Chicago. "They were waiting for the purchase results and saw no surprises. Then they started selling again."
Losses for benchmark 10-year U.S. Treasuries doubled after the results, falling a full point in price and pushing the yield to a two month high of 2.745%.
Spot gold and crude oil prices suffered their biggest drop in a month, despite the U.S. dollar's weakness.
In the afternoon, the Dow Jones industrial average was down 109.33 points, or 0.97%, at 11,173.77. The Standard & Poor's 500 Index was down 16.38 points, or 1.35%, at 1,197.16. The Nasdaq Composite Index was down 43.60 points, or 1.71%, at 2,511.92.
The pan-European FTSEurofirst 300 index of top shares closed down 0.43% at 1,103.99 points.
Shanghai's stock market suffered the worst loss in over 14 months after rumors swept through the market that further monetary tightening was imminent to stem rising Chinese prices, especially in the housing sector.
Tokyo's Nikkei 225 index fell 1.4% from a 4-1/2 month closing high in the previous session.
Looking broadly, the MSCI All-Country World index fell 1.22%. Ireland's debt problems, much like the rest of peripheral Europe, are keeping investors on edge despite the denial from leaders that bondholders were at risk.
Sources told Reuters on Friday that Ireland is in talks to tap emergency funds from the European Financial Stability Facility that would allow investors to avoid taking a loss on their investments.
"The rumors that the EU may come out with a support package for Ireland has led to a bout of short-covering. Investors are very short Ireland," said Nick Stamenkovic, an interest rate strategist at RIA Capital Markets.
"Most of the long-term players will just be sitting on the sidelines. There's so much volatility in the market, they don't want to get involved until the situation clarifies," he said.
The premium demanded to hold Irish 10-year bonds over German bonds narrowed from record high levels.
In the currency markets, the euro was up 0.22% at $1.3685 against the dollar, having earlier hit a six-week low of $1.3573 on EBS trading platform.
The dollar cut its losses versus the yen, pulling just above even on the day at 82.54. Against major currencies, the greenback fell 0.09% at 78.15.
Crude oil fell $3.05, to $84.76 per barrel. Spot gold prices lost $44.30 to $1364.60 an ounce.