By Ritvik Carvalho
LONDON
(Reuters) - A plummeting Turkish lira sent ripples through global
equities and emerging markets on Friday, as rising fears of a wider
fallout sent investors scurrying for the safety of assets such as the
yen and U.S. government bonds.
The
lira fell as much as 12 percent against the dollar earlier in the day,
its worst day since Turkey's financial crisis of 2001, on the back of a
deepening rift with the United States, worries about its own economy and
lack of action from policymakers.
The currency is down more than 35 percent this year, its losses accelerating as the dollar jumped to 13-month highs.
That
is spreading fear of an impact on other economies and markets -- bank
shares across the continent fell and the euro slipped to its lowest
since July 2017 as the Financial Times quoted sources as saying the
European Central Bank was concerned about European banks' exposure to
Turkey.
Shares
in France's BNP Paribas, Italy's UniCredit and Spain's BBVA, the banks
seen as most exposed to Turkey, fell as much as 4 percent.
That took European bank shares down 1.3 percent while the pan-European STOXX 600 index fell 0.7 percent. [.EU]
The
MSCI All-Country World index, which tracks shares in 47 countries, was
down 0.6 percent on the day, having erased all its gains for the week.
Wall Street was set for a weak open.
"People
looking at things this morning are much more aware that there is
central (major) contagion risk," said David Owen, chief European
economist at Jeffries in London.
"Having
said that, what's happening in emerging markets is leading to risk-free
rates being bid for and that includes Treasuries, Bunds and gilts."
As
investors piled into "safe" bonds, German yields hit three-week lows
and yields on U.S. 10-year Treasuries fell to 2.8913 percent.
Investors
are now awaiting the release of the U.S. consumer price inflation for
July for clues on the interest rate outlook and to gauge if new import
tariffs were starting to have an impact. The data is expected to show
inflation likely increased 0.2 percent, after rising 0.1 percent in
June.
The
Australian dollar - often viewed as a proxy for global risk appetite
because of its commodity reliance - was the biggest faller among
developed currencies, down 1 percent on the day. Going in the opposite
direction was the safe haven Japanese yen, which hit a one-month high
against the dollar.
The
dollar index, which measures the greenback's strength against a group
of six major currencies, breached the 96 level, taking it to its highest
level since July 2017.
Adding
to emerging market currency woes was the Russian rouble, weakened to
67.12 to the dollar. Overnight it had retreated to its lowest since
November 2016 on threats of new U.S. sanctions, weakening beyond the
psychologically important 65-per-dollar threshold.
"Other
EM currencies have held their ground against the dollar, having
generally been weakening previously," said analysts at Capital
Economics.
"In
most cases though, we suspect that this resilience will prove
temporary," they said, highlighting expectations of rising U.S. interest
rates and worries over growing U.S. protectionism.
In
commodities, U.S. crude oil fell 0.5 percent to $66.51 a barrel, while
Brent crude was 0.4 percent lower at $71.77 per barrel.
Despite the broader flight to safe havens, gold was lower. Spot gold fell 0.3 percent to trade at $1,207.15 per ounce.
(Reporting
by Ritvik Carvalho; Additional reporting by Dhara Ranasinghe in LONDON
and Asia markets team; Editing by Matthew Mpoke Bigg)
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