May 14, 2012 / 3:48 AM / in 7 years

Riskier assets hit as Euro zone worries grow

Traders work at their desks at Frankfurt's stock exchange. REUTERS/Pawel Kopczynski

LONDON (Reuters) - The euro hit four month lows and shares fell on Monday as the increasing likelihood of a new election in Greece worsened the sense of crisis in the euro zone and China’s latest move to loosen monetary policy only added to investor risk aversion.

The refusal of a major leftist party to join a new Greek government has brought the prospect of its exit from the euro a step closer. The region’s finance ministers, gathering in Brussels, also face a worsening fiscal position in Spain.

Adding to the negative tone for the higher risk sector, German Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state.

“Selling rallies in risk assets seems the best way to make money in most asset classes given the event risk is still very real this week.” said Chris Weston, an institutional dealer at IG Markets.

Safe haven German bonds and the U.S. dollar gained from the drive for safety with the June German Bund future setting a record high of 143.17, up 40 ticks, in early trade.

The dollar rose 0.2 percent against a basket of major currencies to 80.45 .DXY, helping send the euro to its lowest in nearly four months at $1.2878.

China’s cut in the amount of cash banks must hold as reserves only served to fuel fears the European crisis was hurting global growth, leaving the MSCI’s broad world equity index .MIWD00000PUS down 0.2 percent after it fell two percent last week. The key FTSE Eurofirst .FTEU3 index of top European shares opened down 1.1 percent at 1,011.48.

Oil and copper also eased on concerns over the demand outlook.

By Richard Hubbard; additional reporting by Francesco Canepa; editing by Philippa Fletcher

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