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. Last Updated: 07/27/2016

Euro Markets Spooked by Triple Threat

LONDON -- European financial markets wobbled Monday, spooked by the triple worry of sharp losses on Wall Street, rising U.S. Treasury-bond yields and fears of a Mexico-style crisis in Brazil.


All three major equity markets in London, Paris and Frankfurt, started the week in negative territory but later pared some of their losses.


"Everything's a worry this morning. It's the Dow, the bonds, stronger sterling and there's a bit of stock around," an equities dealer in London said.


The dollar opened in Europe lower against both the Deutsche mark and Japanese yen, weighed down by Friday's rise in the U.S. long bond yield through 7.0 percent and Brazilian fears.


Rudiger Dornbusch, an influential U.S. economist and former adviser to President Bill Clinton, sparked the worries about Brazil by telling a conference that capital flows into South America's biggest economy were unstable and risked a financial crisis like Mexico's in late 1994.


"There's a lot of short-term trading whipping this market around at the moment and Dornbusch was enough to cap the dollar overnight," said Michael Burke, economist at Citibank.


While a crisis in Brazil might not have as large an impact on the dollar as Mexico, Burke said it would be negative as any bailout would have to be funded in dollars.


On Monday morning, the dollar was trading at 1.5226 marks and 107.57 yen, up from a European low of 1.5178 marks and 107.40 yen. That compares with 1.5247 marks and 107.89 yen in late trade Friday.


The Czech crown also suffered heavy early losses, falling over 2 percent, after inconclusive parliamentary election results shocked unsuspecting financial markets, but later recovered partially, dealers said.


Traders said the U.S. bond market was weighing on the dollar and German government bond markets. British bonds were slightly higher on money supply figures.


Fears the U.S. Federal Reserve might raise interest rates next month was the main driving force behind U.S. Treasuries last week, with rising yields having a major impact on stocks.


Wall Street's 51-point fall Friday, capping a week of volatile trade, was in turn the early influence in Europe.