On Tuesday, Spanish borrowing costs shot up to their highest level since December, while the Dow Jones Industrial Average sank 1.7% in its sharpest one-day drop since November. The benchmark Stoxx 600 Index lost 2.5%, its second worst percentage decline this year.
Spain's IBEX 35 Index dropped 3% to 7433.60, its lowest closing level since March 2009 and Italy's FTSE MIB Index sank 5% to 14458.88, its biggest one-day drop since the beginning of November.
The significant falls in equity markets and flight to safe havens, such as German debt, came as tensions in "peripheral" government bond markets resurfaced. Investors are concerned that the effect of the European Central Bank's long-term refinancing operation are being eroded and the governments of Spain and Italy may not be doing enough to implement much-needed austerity measures.
"We're reminded that Europe faces a long, difficult road out of its current challenges," said Rabobank International. "Governments need to take the opportunity the ECB has given them rather than view the ECB's printing press as the savior that removes the need for fiscal responsibility."
The focus will likely be on government bond yields after a significant rise in borrowing costs for some of the euro-zone's more problematic countries. Spanish 10-year yields climbed to 5.95%, their highest level since early December, before the first LTRO, according to Tradeweb.
Asian stock Market down april 11 2012
In addition, Asian stock markets were mostly lower Wednesday. Cyclical stocks, led by Japanese exporters, dropped sharply. Japan's Nikkei Stock Average fell 0.6% to 9482.11 after hitting a two-month low at 9388.14 earlier. Wednesday's drop marked the seventh straight day of declines for the Nikkei--its longest losing streak since July, 2009. Hong Kong's Hang Seng Index dropped 1.2%, Australia's S&P/ASX 200 declined 1% and China's Shanghai Composite Index slipped 0.1%.
In currency markets, the Japanese yen took a breather against the dollar and the euro after rising sharply Tuesday on safe-haven demand. The common currency was generally steady, having fallen below the key $1.31 level against the dollar on Tuesday.
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