LONDON: Safe-haven German bond prices rose and gold firmed on Wednesday after Spain's credit rating was cut to one notch above "junk" ahead of a crucial Italian bond sale, and weak US data fuelled concerns that the euro zone crisis was hitting global growth.
"We are fast approaching the point where both Spain and Italy may have to be removed from the market," said Gary Jenkins, director of Swordfish Research.
Despite the rating cut, the euro ticked up slightly against the dollar and European shares prices only inched lower as many investors were sidelined ahead of Sunday's cliffhanger election in Greece, which could see the country exit the currency bloc.
Gold traded up 0.15 percent to $1,620 an ounce, having already gained over 1 percent this week, and, after two days of heavy selling, German government 10-year bond prices rose to push the yield down four basis points to 1.46 percent.
The euro traded around $1.2565, well within its recent range between a near two-year low on June 1 of $1.2288 and Monday's three-week high of $1.2672.
The FTSE Eurofirst index of top European shares and the blue-chip Euro STOXX 50 opened down 0.3 percent, while the MSCI world equity index dipped 0.2 percent to 300.79 points.
Italy's borrowing costs are expected to rise sharply at a bond auction of up to 4.5 billion euros of new debt later, but the small size of the sale should ensure its success.
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