Fears of a resurgence in the euro zone debt crisis boosted demand for safe-haven German bonds today, while the Bank of England and a European Central Bank official signalled more monetary policy easing to support growth was unlikely.
US stocks index futures also pointed to a lower open, after a strong session yesterday, when a robust start to the quarterly earnings season helped the S&P 500 to its biggest gain in a month.
Growing bad loan problems at Spanish banks and comments by French president Nicolas Sarkozy, fighting for re-election, that the euro's exchange rate should be up for discussion with the ECB also helped send the single currency lower.
"Investor demand for core paper remains firm, with the background threat of crisis tensions ratcheting yet higher, underpinning an overriding desire for capital preservation," said Rabobank strategist Richard McGuire.
The concern about a flare-up in the euro zone debt crisis, which has largely been centred on Spain's budget problems, enabled Germany to auction off €4.2 billion in two-year bonds at a record low yield of just 0.14 per cent.
The strong demand came as some high-profile investors were raising doubts over whether Europe's biggest economy could escape the impact of debt problems in Spain and Italy.
The head of German life insurer Allianz Leben, Maximilian Zimmerer, told financial daily Handelsblatt that the safety of long-term German government bonds was overrated.
"They are over valued; the yield is too low. If a euro zone country runs into trouble, Germany in any case will have to pick up the bill in the end," Mr Zimmerer said.
The euro zone blue-chip Euro STOXX 50 index, which saw its biggest daily gain of the year on Tuesday, fell 0.2 per cent to 2,422.92. The FTSE Eurofirst index of top European shares was down 0.6 per cent at 1046.35.
Reuters
