LONDON - The euro closed in on a three-month low and safe-haven German bonds rose on Wednesday as political disarray in Greece and the rising costs of fixing Spain's banks fueled fears the euro zone's debt crisis was worsening. The concerns over Europe added to worries about the impact of softer growth in the US on the global economic outlook, causing a broad retreat from risky assets with world shares falling, oil prices down for a sixth straight session and the commodity-linked Australian dollar hitting new lows. The market's immediate attention was on Athens where efforts to form a government were expected to fail, putting its ability to meet the terms of its bailout deal in doubt and raising the possibility of Greece being forced out of the euro. "The sensitivity to political developments in Greece is largely a reflection that the probability of Greece exiting the euro, posing a significant threat to global financial stability, has increased," Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ said. The euro fell 0.3 percent to $1.2977, closing in on a three-month low near $1.2955 touched on Monday below the $1.30 to $1.35 range it has traded within for most of the year. "We still think the euro will head lower with $1.2950 the level to break in the near-term," said Lauren Rosborough, senior FX strategist at Societe Generale, who have a medium-term target of $1.2500. Global shares as measured by MSCI world equity index fell 0.4 percent to 316.40 points, which was nears its low for the year after resource and energy shares were hard hit in Asian trading. The FTSE Eurofirst index of top European shares was being dragged lower by falls in bank stocks, which are most exposed to Europe's debt problems and were hit by the problems in the Spanish banking sector in particular. Financial sources told Reuters on Tuesday the Spanish government would demand its banks raise around a further 35 billion euros ($45.48 billion) in provisions against loans in their property portfolios. Spanish lender Bankia, which will see an injection of public cash, led the falls in the sector dropping 5.7 per cent, while Santander was down 3.8 perc ent and BBVA slipped 3.6 per cent. Concerns over Spain's banking system pushed Spanish 10-year government bond yields up 16 basis points to 6.03 per cent, and above the 6 percent mark that could see the rise in yields accelerate if the break is sustained.
