* MSCI World Index down 0.48 percent
* Portuguese, Spanish and Irish debt under pressure
* European bank stocks pounded
* Wall Street to open lower
By Claire Milhench
LONDON, April 27 (Reuters) - Stocks extended their falls on
Tuesday and bond spreads for the euro zone periphery hit new
highs as investors fretted that the Greek debt crisis could
spread, driving down the euro.
Wall Street looked set to open lower.
As Germany continued to hold out for strict conditions on
the aid package offered to Greece by the European Union and the
International Monetary Fund, investors looked for the next weak
link in the euro zone, targeting Portugal, Ireland and Spain.
Germany's Chancellor Angela Merkel has said that Greece must
commit to further painful austerity measures and show that it
can return to a sustainable economic path before Germany can
approve aid. []
Greece is hoping that the 45 billion euro ($59.97 billion)
aid package from the EU and the IMF [] will arrive
in time to finance a debt roll-over on May 19, but Merkel's
comments have created market jitters as the timing for approving
the package now looks tight.
"The market is wondering whether political ramifications
could delay the money or raise a question mark over whether
Greece will be able to finance itself before the deadline," said
Daragh Maher, senior currency strategist at Credit Agricole.
Fears of a Greek default and contagion within the euro zone
prompted a sell-off in Greek and Portuguese bonds.
The Greek/German 10-year bond yield spread <GR10YT=TWEB>
<DE10YT=TWEB> widened to 691 basis points -- the largest gap
since at least early 1998 according to Bank of Greece data -- as
investors demanded higher premiums to hold Greek debt.
The equivalent Portuguese spread hit a record high of 258
basis points. Spain and Ireland also came under pressure, with
bank credit default swap spreads widening. These are used as a
proxy for government debt.
"If (Germany) were moving faster, it's arguable the risk of
contagion would be less -- however, at this point in time, the
markets smell blood," said Charles Diebel, head of European
rates strategy at Nomura.
The cost of insuring Greek debt from default rose, with the
5-year credit default swap widening out to a new record high of
736.6 basis points, according to CMA DataVision.
The cost of insuring Portuguese debt from default also
widened, to a record high of 316.6 basis points for the 5-year
CDS, said CMA DataVision.
Investor worry over Greece hit equities, with world stocks
as measured by the MSCI All-Country World index <.MIWD00000PUS>
down 0.48 percent, while its more volatile emerging markets
component, the MSCI Emerging Markets Index <.MSCI EF>, was down
0.66 percent.
The pan-European FTSEurofirst 300 <> of top European
shares extended its early morning fall, down 1.44 percent.
Banks took a pounding despite forecast-beating quarterly
earnings from Deutsche Bank <DBKGn.DE>, which tumbled 2.3
percent over fears it would not be able to repeat the strong
results in coming quarters.
Earlier, in Japan, the Nikkei <> closed up 0.42
percent, with investors focusing on individual stocks that
reported better-than-expected profits or revised earnings
guidance.
EURO SLIPS
The euro <EUR=> slipped 0.59 percent to $1.3315, down over 7
percent in the year to date, as investors sought the safe haven
of the dollar. Analysts said that signs of cracks in the euro
system would keep it under selling pressure.
"Indications from euro zone members are that aid will be
provided, but there remain uncertainties about the terms," said
Kasper Kirkegaard, currency strategist at Danske in Copenhagen.
Against a currency basket <.DXY> the dollar rose 0.2 percent
to 81.625.
The low-yielding Japanese yen rose broadly, boosted as
concerns about euro zone debt problems raised general risk
aversion, a situation that often benefits the yen.
The dollar <JPY=> slipped 0.2 percent to 93.7 yen.
(Editing by Stephen Nisbet/Tony Austin)
