Speculation that Portugal may be the next euro zone member forced to seek a bailout knocked the euro to a four-month low against the dollar on Monday and added pressure on world stocks already hurt by lacklustre U.S. jobs data.
The euro fell to lows not seen since mid-September in Asia trading, slipping to $1.2860 on trading platform EBS. It was later at $1.2902.
The trigger for the move was a Sunday report by Reuters citing a senior euro zone source saying that pressure was growing on Portugal from Germany and France to seek financial help from the European Union and International Monetary Fund to stop the bloc's debt crisis from spreading.
Those comments came after a Portuguese government spokesman denied a German magazine report that Lisbon was under pressure from Berlin and Paris to seek a bailout.
Concern about euro zone debt has returned after a brief hiatus with a series of auctions of Portuguese, Spanish and Italian debt in the coming week.
"I think overall the path of least resistance is going to be the downside for the euro," said Andrew Robinson, currency market strategist for Saxo Capital Markets in Singapore.
The premium investors demand to hold Spanish and Italian government bonds rather than German benchmarks rose on Monday. The yield spread between Belgian and German debt also widened, although this was more related to political uncertainty.
"The sovereign debt crisis is increasingly coming back into the market's focus… There is a lot of concern among politicians over the crisis, and this only fuels the market's concerns," said Niels From, chief analyst at Nordea in Copenhagen.
STOCKS WEAKER
The debt issue weighed on global equity markets, where investors were already digesting last Friday's disappointing U.S. payrolls report as well as preparing for the start of the fourth-quarter earnings season.
World stocks as measured by MSCI lost half a percent, taking them into negative territory for the year-to-date. Emerging markets stocks were down three-quarters of a percent.
In Europe, the FTSEurofirst 300 was down 0.7 percent. Japanese markets were closed for a holiday.
"The debt crisis is still a feature in the background. We did see some disappointment as far as Portugal is concerned in terms of the rates they are paying. Some other countries will also be approaching the debt market in the near term," said Keith Bowman, equity analyst at Hargreaves Lansdown.
The quarterly results season kicks off in the United States this week with Alcoa, Intel and JPMorgan Chase among the first to report.
