TOKYO (Reuters) – Asian shares were down on Tuesday as investors remained skeptical that a European leaders summit later this week will produce any substantive measures to solve the region’s protracted debt crisis.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off 0.1 percent, while Japan’s Nikkei average .N225 opened down 0.7 percent. .T
The euro was steady at $1.2505, off a two-week low of $1.24713 hit on Monday when growing concern over the June 28-29 EU summit sent risk assets and the single currency sinking, while pushing up Italian and Spanish debt yields as contagion risks weighed on investor sentiment.
The two-day summit in Brussels will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.
A fifth euro zone country turned to Brussels for emergency funding on Monday when Cyprus announced it was seeking a lifeline for its banks and its budget, hours after Spain submitted a formal request to bail out its banks.
“With EM (emerging market) risks still subject to global/European market developments, investors will likely remain reluctant to make strong directional calls.” said Barclays Capital analysts in a research note, adding that they would stay long in U.S. dollars, especially against European currencies.
U.S. crude inched up 0.2 percent at $79.38 a barrel and Brent crude rose 0.5 percent at $91.44 a barrel.
Spain has asked Brussels for up to 100 billion euros ($125 billion), saying it intends to sign a Memorandum of Understanding for the package by July 9.
Late on Monday, Moody’s Investors Service downgraded the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings, following a cut to Spain’s sovereign rating to just above junk status earlier this month.
The main driver behind the markets’ pessimistic view was Germany’s persistent resistance to issue common euro zone bonds to underpin its single currency, after German Chancellor Angela Merkel on Monday said sharing debt liability within the 17-nation euro area would be “economically wrong and counterproductive”.
As riskier assets remained under pressure, Asian credit markets weakened, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 3 basis points early on Tuesday.
Mounting investor risk aversion pushed the CBOE volatility index .VIX, which measures expected volatility in the Standard Poor’s 500 index .SPX over the next 30 days, up 12.5 percent to a one-week high on Monday.
With the banking crisis in Spain, the fourth-largest euro zone economy, taking a toll on the country’s debt refinancing costs, investors were feeling jittery about how Italy, the third-largest economy, would finance its huge public debts.
Italy plans to sell zero-coupon and inflation-linked bonds on Tuesday and medium- and longer-term bonds on Thursday.
Greece’s new government sworn, in last week, has called for the renegotiation of the terms of its bailout, which is keeping the country from bankruptcy at a cost of heavy economic burden.
The European Commission, the European Central Bank and the International Monetary Fund must first assess Greek compliance with its 130 billion euro bailout agreement before any renegotiation can be considered.
(Editing by Michael Perry)