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European markets plunge as Irish bailout fails to ease fears

November 29, 2010 | 10:49 am

Looks like Europe needs a Plan B. And maybe C, D and E.

The European Union’s bailout of Ireland, hammered out over the weekend, was supposed to calm investors’ nerves and shore up the euro. It’s doing neither.

Most of the continent’s major stock markets tumbled between 2% and 3% Monday, and the euro has slumped to a two-month low, falling 1.1% to $1.309 from $1.324 on Friday.

Irelandflag The Spanish stock market slid 2.3%, and now is down nearly 15% just since Oct. 22.

Worse, investors have continued to demand higher yields on government bonds of Spain, Portugal, Italy and even France and Germany, which could force the weakest countries to follow Ireland in seeking EU emergency loans.

“The scent of contagion fear is rising in Europe,” said David Kotok, head of investment firm Cumberland Advisors.

The yield on 10-year Spanish government bonds soared to 5.42% from 5.18% on Friday. The yield was 4.21% a month ago.

Italian 10-year bond yields jumped to 4.64% from 4.42% on Friday.

The U.S. Treasury bond market is benefiting from Europe’s woes, yet there doesn’t seem to be a mad rush into Treasuries -- which may reflect that U.S. economic data have been surprisingly strong in recent weeks, putting a floor under interest rates.

The 10-year T-note yield slipped to 2.83% at about 10:45 a.m. PST from 2.87% on Friday. One-year T-bill yields are flat at 0.27%.

Gold also is attracting buyers, but interest seems relatively muted considering the market firestorm in Europe: Near-term gold futures were up $2 to $1,366.30 an ounce.

U.S. stocks are down but the damage is modest compared with Europe's slide -- which, as with Treasury bonds, may reflect growing optimism about the U.S. economy's outlook. The Dow Jones industrial average was off 126 points, or 1.1%, to 10,965.

 -- Tom Petruno

Photo: Ireland's flag in a protest outside the prime minister's offices in Dublin. Credit: Aidan Crawley / Bloomberg News