One step forward, two steps back: Is this how 2012 is going to be for the stock market? Well, on Thursday at least, one could blame France, where a bond auction resulted in higher yields and stoked concerns about Europe's sovereign debt crisis.
Banking stocks led losers as France's CAC 40 fell 1.4 per cent, Britain's FTSE lost 0.9 per cent and Germany's DAX gave up 1.1 per cent. Japan's Nikkei was 0.8 per cent lower.
U.S. stock futures appeared softer as well. Dow futures were down 75 points, or 0.6 per cent, at 12,281, while S&P 500 futures declined 9.5 points, or 0.8 per cent, to 1,263.50 about two and a half hours before the New York Stock Exchange opened.
The euro hit its lowest level in more than 15 months and bond yields rose across Europe after France had to pay 3.29 per cent on 10-year bonds at an auction, compared with 3.18 per cent last time. It sold 4.02-billion euros worth of debt.
Markets have been bracing for France to lose its AAA rating after Standard & Poor's warned in early December of a mass downgrade due to concerns about the bloc's two-year old debt crisis. France is seen at a greater risk of contagion from the euro zone debt crisis than Germany, but the real test comes next week, when Spain and Italy issue bonds.
The euro fell 0.8 per cent to around $1.2838 (U.S.).
European investors are also concerned about Hungary, which needs to find around $16.5-billion this year to repay debt owed to bondholders and the International Monetary Fund, but is effectively cut off from global capital markets as growing mistrust in its policies pushes up borrowing costs.
Oil edged lower, as a stronger U.S. dollar offset fears of supply disruptions after the European Union agreed to ban imports of Iranian crude. They have yet to decide when the embargo will be put in place. U.S. Treasury Secretary Timothy Geithner will travel to China and Japan next week to discuss U.S. sanctions on Iran with top government officials.
Brent crude futures were off 37 cents to $113.33. U.S. crude was down 84 cents at $102.38 a barrel.
Gold declined $3.40 to $1,609.30 an ounce.
The Canadian dollar traded at 98.22 U.S. cents. The Financial Times points out that the loonie-greenback cross rate dipped below its 100-day moving average this week for the first time since the end of June. The break means the next support is at the 200-day moving average, about 99 cents at present.