NEW YORK – Stocks edged lower and yields for ultra-safe U.S. government debt fell to their lowest level this year Monday while financial markets around the world waited for Greece to nail down a deal to reduce its crushing debt.

Borrowing costs for European countries with the largest debt burdens shot higher. The two-year interest rate for Portugal’s government debt jumped to 21 percent after trading around 14 percent last week.

Greece and the investors who bought its government bonds were said to be close to a deal over the weekend. A tentative deal would replace bonds currently held by investment funds with new ones at half the face value. It’s aimed at cutting Greece’s debt by roughly euro100 billion ($132 billion).

Greece needs the deal to secure a crucial installment of bailout loans and avoid missing an upcoming bond payment. But the deal has been in the works for weeks and could still fall apart.

The Dow Jones industrial average fell 25 points to 12,635 as of 2:30 p.m. Eastern time, a drop of 0.2 percent. The Dow dropped as many as 131 points in morning trading then slowly recovered in the afternoon.

The focus on Greece has shifted attention away from what’s going well in the U.S., said Jack Ablin, chief investment officer at Harris Private Bank. Companies have reported stronger quarterly earnings, and hiring has picked up.

“Our collective breath has been held for so many months,” he said.

While the market is waiting on an agreement to cut Greece’s debt and contain a wider European debt crisis, even a messy default could eventually lead to a stronger U.S. stock market, Ablin said.

“If it finally happens and the world doesn’t fall apart, maybe we’ll have a reason to take risk again,” he said. “Once you pull off the Band-Aid, it feels better.”

U.S. Treasury yields sank to their lowest level this year as traders parked cash in the safest assets. The yield on the 10-year Treasury sank to 1.83 percent. It was trading above 2 percent just last week.

The euro dropped 0.6 percent against the dollar, and European stocks sank. French and Spanish stock markets closed down 1.6 percent.

An agreement between Greece and its creditors could serve as a blueprint for other European countries with heavy debt burdens. Dan Greenhaus, chief global strategist at BTIG, pointed to Portugal’s soaring bond yields in a note to clients.

“At this rate, Portugal is going to move from the back to front burner in very, very short order,” he said.

European leaders are also gathering in Brussels, focusing on how to stimulate economic growth when huge government spending cuts threaten to push many countries back into recession.

The latest data showed Spain’s economy shrank in the last three months of 2011.

In other trading in the United States, the broader Standard & Poor’s 500 index fell 3 points to 1,313. The Nasdaq composite lost less than 1 point to 2,816.

The Commerce Department said Americans’ income rose in December by the most in nine months. That’s slightly better than what economists expected.

Among stocks making big moves Friday:

• The fast food chain Wendy’s dropped 1.3 percent. The Wendy’s Co. said Monday that a key measure of earnings dropped 30 percent in the fourth quarter. Charges for selling Arby’s offset the effects of a jump in sales.

• PharMerica Corp. plunged 12 percent. The Federal Trade Commission said it was suing to block rival pharmacy company Omnicare Inc. from completing its $457 million takeover of PharMerica. The agency said a merger of the country’s two largest long-term care pharmacies would raise the cost of Medicare prescription plans covering drugs for nursing home residents. Stock in Omnicare Inc. fell less than 1 percent.

• Thomas & Betts Corp. soared 22 percent on news that Swiss engineering group ABB Ltd. agreed to buy the maker of power lines and other electrical products for $3.9 billion in cash.

LONDON – Another set of successful bond auctions in Europe and renewed confidence in the continent’s banks helped markets rally Thursday as investors awaited developments in Greece’s debt-reduction talks with private creditors.

Strong bank earnings out of the U.S. from Bank of America and Morgan Stanley, as well as a bigger reduction in weekly U.S. jobless claims, helped to shore up sentiment even further as Wall Street trading began.

European banks, including those considered particularly susceptible to a further outbreak of unease in Europe, such as France’s Societe Generale and Italy’s UniCredit, were further buoyed by the news that Germany’s second-largest bank, Commerzbank AG, won’t need help from shareholders or the government to boost its capital base.

The mood in financial markets has been fairly upbeat over the past couple of weeks and much of the optimism stems from a growing sense that Europe’s debt crisis, though not solved by any means, has stabilized to an extent.

The ability of France and Spain to tap investors for money at what were largely affordable rates, in spite of last week’s downgrade of their credit ratings by Standard & Poor’s, reinforced that view.

“European developments are once again at the forefront, with today’s European debt auctions proceeding smoothly,” said Nick Bennenbroek, an analyst at Wells Fargo Bank.

By early afternoon in Europe, France’s CAC-40 was up 1.5 percent at 3,313 while Germany’s DAX rose 0.6 percent to 6,393. The FTSE 100 index of leading British shares was 0.4 percent higher at 5,725.

The recent easing in concerns over Europe’s debt crisis has helped the euro clamber off Monday’s 17-month low against the dollar below $1.27. It’s now trading at $1.2890, up 0.2 percent on the day.

In the U.S., the Dow Jones industrial average was up 0.1 percent at 12,591 while the broader Standard & Poor’s 500 index rose 0.2 percent to 1,311.

The recent optimism could all disappear though if Greece fails to successfully conclude its debt-reduction negotiations with the Institute of International Finance, which represents private sector bondholders. Talks are set to continue later, having restarted Wednesday.

Greece needs to clinch the agreement quickly to qualify for more bailout loans before it faces a major bond repayment on March 20. Without the money, the country would find it difficult to service its debts and be forced to default, potentially triggering more turmoil in global markets.

Last October, Greece’s partners in the eurozone sanctioned a deal whereby Greece’s creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country’s debt burden. The deal with private investors aims to reduce Greece’s debt by euro100 billion ($127.9 billion) by swapping private creditors’ bonds for new ones with a lower value. It is a key part of a euro130 billion international bailout, the second one for Greece.

Hopes that a deal is being thrashed out has helped shore up sentiment in markets in recent days as has the IMF’s revelation that it aims to raise up to $500 billion to meet its $1 trillion financing needs in coming years. The new money to be raised includes $200 billion that European countries recently agreed to hand the IMF.

Earlier in Asia, Japan’s Nikkei 225 index rose 1 percent to close at 8,639.68. South Korea’s Kospi rebounded 1.2 percent to 1,914.97 after a losing session Wednesday. Hong Kong’s Hang Seng rose 1.3 percent at 19,942.95.

Oil prices tracked equities higher — benchmark oil for February delivery was up 93 cents to $101.52 per barrel in electronic trading on the New York Mercantile Exchange.

___

Pamela Sampson in Bangkok contributed to this report.

BANGKOK – World stock markets rose Friday, driven higher by a successful bond issue in Europe that eased worries over the continent’s sovereign debt crisis.

Benchmark oil rose to nearly $100 per barrel and the dollar fell against the euro and the yen.

European shares rose in early trading. Britain’s FTSE 100 advanced 0.6 percent to 5,694.38. Germany’s DAX gained 0.7 percent to 6,221.96 and the CAC-40 in Paris gained 0.9 percent 3,229.17. Wall Street, too, was set to open higher, with Dow Jones industrial futures up 0.1 percent to 12,424. S&P 500 futures rose 0.1 percent at 1,293.

Asian shares were mostly higher. Japan’s Nikkei 225 index rose 1.4 percent to close at 8,500.02 and South Korea’s Kospi index moved 0.6 percent at 1,875.68. Hong Kong’s Hang Seng index vacillated before closing in positive territory, up 0.6 percent to 19,204.42.

Australia’s S&P ASX 200 was 0.4 percent higher at 4,195.90. Benchmarks in Singapore, Indonesia, India and Malaysia also rose.

But mainland Chinese shares fell as investors continued to cash in on recent gains. The benchmark Shanghai Composite Index lost 1.3 percent to 2,244.58, while the Shenzhen Composite Index dropped 3.5 percent to 845.93.

“The market will be volatile for the next one or two weeks after this correction, since there is just no support for the market to rise in the long term,” said Xu Xiaoyu, an analyst at China Investment Securities, based in Beijing.

PetroChina, the country’s biggest oil and gas company and the Shanghai benchmark’s biggest component, gained 1.4 percent as oil prices rose to near $100 a barrel in Asia on Friday on worries over supply tightness.

Elsewhere, raw materials and industrial companies advanced, following their U.S. counterparts higher. Japanese heavy equipment maker Komatsu Ltd. jumped 4.1 percent and Hitachi Construction Machinery gained 3.8 percent.

Energy Resources of Australia soared 6 percent and Paladin Energy Ltd., an Australian uranium miner, gained 3.1 percent. But shares in Australia’s QBE Insurance group dropped 3.1 percent, after the company warned its earnings could halve following a spate of natural disasters in 2011.

South Korean tech shares advanced, with Samsung Electronics Co., the country’s largest company, up 1.8 percent and Hynix Semiconductor, a global leader in chip-making, surging 4.1 percent. Its largest banking group, Woori Financial Holdings Co., jumped 3.9 percent.

Strong bond auctions in Italy and Spain on Thursday pushed stocks higher. Italy was able to sell one-year bonds at a rate of just 2.735 percent, less than half the 5.95 percent rate it had to pay last month. Spain was able to raise double the amount of money it had sought to raise in its own bond sale as demand for its debt was strong.

Investors have been worried that Italy and Spain might get dragged into the region’s debt crisis. Greece, Ireland and Portugal have been forced to get relief from their lenders after their borrowing costs spiked to levels the countries could no longer afford.

Benchmark oil for February delivery rose 78 cents to $99.88 per barrel in electronic trading on the New York Mercantile Exchange. The contract tumbled $2 to finish at $99.10 per barrel in New York on Thursday.

In currency trading, the euro rose to $1.2843 from $1.2827 late Thursday in New York. The dollar was slightly down at 76.73 yen from 76.76 yen.

___

AP researcher Fu Ting contributed from Shanghai.

BANGKOK – Asian stock markets rose Friday, driven higher by a successful bond issue in Europe that eased worries over the continent’s sovereign debt crisis.

Japan’s Nikkei 225 index gained 1 percent to 8,471.55 and South Korea’s Kospi index added 0.6 percent at 1,875.68. Hong Kong’s Hang Seng index rose 0.4 percent to 19,163.56 and Australia’s S&P ASX 200 was 0.3 percent higher at 4,194.40.

Raw materials and industrial companies posted solid gains, following their U.S. counterparts higher. Japanese heavy equipment maker Komatsu Ltd. jumped 3.8 percent and Hitachi Construction Machinery gained 3.4 percent.

Energy Resources of Australia soared 7.2 percent and Paladin Energy Ltd., an Australian uranium miner, gained 3.4 percent.

On Wall Street, stocks ended higher after oil prices dropped below $100 per barrel for the first time this year. Oil fell on rumors that Europe will delay an embargo on Iran. Crude plunged $2 a barrel in just eight minutes, ending at $99.

The Dow Jones industrial average gained 0.2 percent to end at 12,471.02. The S&P 500 finished up 0.2 percent at 1,295.50. The Nasdaq composite rose 0.5 percent to 2,724.70.

Strong bond auctions in Italy and Spain also pushed stocks higher. Italy was able to sell one-year bonds at a rate of just 2.735 percent, less than half the 5.95 percent rate it had to pay last month. Spain was able to raise double the amount of money it had sought to raise in its own bond sale as demand for its debt was strong.

Investors have been worried that Italy and Spain might get dragged into the region’s debt crisis. Greece, Ireland and Portugal have been forced to get relief from their lenders after their borrowing costs spiked to levels the countries could no longer afford.

Benchmark oil for February delivery rose 24 cents to $99.34 per barrel in electronic trading on the New York Mercantile Exchange. The contract tumbled $2 to finish at $99.10 per barrel in New York on Thursday.

In currency trading, the euro fell to $1.2822 from $1.2827 late Thursday in New York. The euro hit a 16-month low of $1.2661 on Wednesday after Germany predicted that its economy shrank in the last three months of last year.

The dollar rose to 76.80 yen from 76.76 yen.

PARIS – The specter of Europe’s debt crisis returned Thursday after a brief respite, as bank stocks fell sharply on worries about losses on government debt and a French bond auction drew lackluster demand from investors.

Financial stocks slumped as it became clear banks would have trouble raising billions in new capital in coming months. In Italy, trading in UniCredit shares was halted after they lost a quarter of their value since yesterday morning, when the bank announced it had to offer huge discounts to investors to attract new capital.

The banks need the money to cover potential losses on government debt, whose value has plummeted across most of Europe in recent months on fear of defaults. Many countries in the region have to roll over billions in debt in coming months, putting huge focus on their bond auctions.

France raised euro7.96 billion ($10.31 billion) on Thursday, at the top of its goal, in an auction where demand was solid but far less than at the last sale in December. The borrowing rate for the 10-year bonds, which made up most of the auction amount, rose to 3.29 percent from 3.18 percent last time.

The sale also included 12-year, 24-year and 30-year bonds, and analyst Louise Cooper of BGC Partners said that just the fact that France was auctioning long-term debt indicated its position was fairly solid.

“When countries start to see their funding costs shoot up, then they issue short-term debt as this tends to be cheaper,” she said. “Long-term funding is a sign of confidence in a country.”

But she added that the demand level was “a little worrying, especially as France has a lot of debt to refinance this year.”

The country is under close scrutiny since ratings agencies warned they could strip it of its top AAA grade because of the impact of the crisis and a looming recession on its public finances. A downgrade would likely push France’s borrowing costs even higher.

France’s banks are burdened with huge amounts of government bonds from weak countries like Greece, and boosting them with state money could be expensive — and possibly trigger a downgrade for France.

Formerly routine affairs, European government bond auctions have become tense ordeals during the crisis. Countries that cannot raise money at reasonable rates must be rescued with bailout packages, and investors have grown concerned in recent months that even countries in the so-called European “core” could join that ignominious club. Thus far, only the relatively small economies of Greece, Ireland and Portugal have sought bailouts.

At the very least, if countries like France are forced to pay more to borrow money, they may become unwilling — or unable — to support their smaller neighbors.

After weeks of watching the bond yields of Italy, France and Spain rise, investors got a small respite this week. Germany and Portugal both sold bonds Wednesday at lower rates than previous auctions.

But France’s auction result was not quite as good, while Hungary — a non-euro member of the EU — saw its borrowing rates jump higher in a bond sale of its own. The country’s tense financial situation has deteriorated in recent weeks, pushing it to accept negotiations for a standby loan from the International Monetary Fund.

The bad news helped weaken sentiment in European markets, pushing the euro to $1.2798, a 15-month low against the dollar.

On the secondary market, where the issued bonds are later traded openly, the yield on 10-year bonds in Italy and Spain — both considered too big to bail out — were on the rise. Italy’s rose above the psychologically sensitive level of 7 percent, which is considered unsustainable in the longer term.

European financial stocks were hit hard as the debt worries resurfaced. To protect banks against losses on government bonds, European governments are forcing them to keep more safe capital on hand. But raising that money has proved tricky for some, since investors are reluctant to buy their stock or bonds.

Italy’s largest bank, UniCredit, announced Wednesday it would offer stock at a 69 percent discount to raise cash — a disturbing sign of just how pressed banks are.

More bad news came Thursday, when the Financial Times reported that Spain’s government thinks its banks will have to raise euro50 billion more than previously thought. That news sent Spanish bank stocks tumbling and contributed to losses in other countries. France’s Societe Generale SA was down 5 percent, for example.

The continued volatility in markets is another sign that investors don’t put much stock in the “solutions” unveiled at a summit last month that committed governments to a new treaty that would give European bureaucrats substantial oversight of their budgets.

Leaders hoped to reassure markets that overspending would never again threaten state solvency, but investors have noted that it does nothing to solve the immediate crisis — the heart of which is rising bond yields — and is unlikely to ever be enacted as strongly as it was conceived anyway.

Instead, they want the European Central Bank step in more forcefully to drive down borrowing costs by buying bonds in the open market, a practice it engages in only modestly right now. Analysts argue that would give governments time to enact longer-term solutions, like restoring credibility in their spending habits and allowing them to invest in growth. For now, governments can only slash spending to woo markets, but that also cripples already anemic growth and threatens to usher in a new recession.

Despite these challenges, French Prime Minister Francois Fillon promised on Thursday that France would invest in growth, by reducing the taxes companies pay on salaries, in the hopes of driving down the unemployment rate, which stands at 9.7 percent ahead of presidential elections this spring.

Fillon said France would cut debt with a new sales tax and by taxing financial transactions.

The latter is controversial since many have argued it will only work if applied across the European Union or even the world. Britain and the U.S. — both of which are major centers of finance — have strongly resisted it.

Fillon vowed France would push ahead.

“It’s normal that all sectors participate in a collective effort, including the financial sector,” he said.

HONG KONG – Asian stocks tumbled Friday after the European Central Bank said it had no immediate plans for a large-scale purchase of government bonds, a move investors had been counting on to help ease the region’s debt crisis.

ECB president Mario Draghi said at a crucial summit of European leaders that began late Thursday that the bank does not anticipate increasing the scale of its bond interventions, which would have kept down the borrowing costs of weak countries like Italy and Spain.

European leaders will hunker down Friday for a second day of negotiations over how to save the euro.

“Markets regard the summit as a final chance to save the euro,” strategists at Credit Agricole CIB said in a research note.

Japan’s Nikkei 225 fell 1.4 percent to 8,540.63 as the government said the economy grew slightly less in the third quarter. South Korea’s Kospi lost 1 percent to 1,892.83 and Hong Kong’s Hang Seng shed 1.7 percent to 18,784.66.

Benchmarks in Australia, Singapore and Taiwan also fell.

Mainland Chinese shares fell less than other Asian markets after officials said inflation in November fell to a lower than expected 4.2 percent, opening the way for easier credit to support growth. The benchmark Shanghai Composite Index dropped 0.4 percent to 2,321.44.

In New York on Thursday, the Dow Jones industrial average dropped 1.6 percent, to close at 11,997.70. The Standard & Poor’s 500 index ended 2.1 percent lower at 1,234.35. The Nasdaq lost 2 percent to close at 2,596.38.

Benchmark oil for January delivery fell 2 cents to $98.32 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.15 to end the day at $98.34 on Thursday.

In currencies, the euro rose to $1.3347 from $1.3340 late Thursday in New York. The dollar was steady at 77.67 yen.

NEW YORK (Reuters) – U.S. investors came to the Thanksgiving holiday table on Thursday mostly thankful that the week was a short one, or losses could have been larger.

As another round of news and bond auctions from Europe begins next week, traders will watch closely sovereign bond yields that have kept markets on edge.

Yields rose in almost every euro-zone country this week, and Germany failed to find enough bids for a 10-year auction. The S&P 500 reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the euro zone and a visit to Washington from top European Union officials, as well as a meeting of euro-zone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the specter of rising yields, France, Britain, Italy, Belgium and Spain are holding debt sales next week. The direction of bond yields will determine the direction of equity markets.

"Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits and markets become more forgiving and rates come down," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion.

"The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary," he said. "You may continue to see more of the same."

Investors have worried about rising borrowing costs in many euro-zone nations, but Italy, the third-largest euro zone economy, has grabbed most of the focus. On Friday Rome paid a record 6.5 percent to borrow for six months and almost 8 percent to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk-on and -off trades that the euro zone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

POLITICS TO DRIVE THE WEEK

President Barack Obama will meet on Monday with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

"The only thing that will come out of that is speculation," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington.

"It will come down to the U.S. trying to convince European leaders to get something in place to solve this crisis."

Not many hopes are set either on Tuesday's meeting where euro-zone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank President Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

IF EUROPE ALLOWS, DATA WILL BE KEY

Some of the most important U.S. economic monthly data will be released next week, but will it be enough to unlink the stock market's behavior and European yields.

New home sales and the S&P/Case-Shiller home prices index will start the week showing if the housing market continues on life support. Data on confidence among consumers, who flooded U.S. stores on Friday as the holiday shopping season started, will be released on Tuesday.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the U.S. number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek labor data takes over with the private sector employment report from ADP and Challenger's job cuts report, followed Thursday by the weekly jobless claims numbers and topped by Friday's monthly non-farm payrolls report.

"It would be a little bit refreshing to focus on the U.S. data for a change," said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

He said if European headlines allow it, the focus will be in the labor market where "most people are looking for modest improvement."

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy; Editing by Kenneth Barry)

SINGAPORE (Reuters) – Japanese stocks hit a two-and-a-half-year low and the euro struggled on Thursday after a disappointing German bond sale raised alarm that Europe's ever-worsening sovereign debt crisis is starting to affect even the continent's economic powerhouse.

Stocks elsewhere in Asia failed to sustain a rebound from sharp falls in the previous session, but European shares were expected to eke out small gains.

Financial bookmakers predicted Europe's major indexes in London, Frankfurt, and Paris would open 0.3-0.5 percent higher.

Oil and copper made modest rebounds from a sell-off on Wednesday, when weak data from Europe, the United States and China stoked fears the global economy may be heading for a recession that would dull demand for industrial commodities.

Germany's bond sale on Wednesday had one of the worst results since the launch of the euro, raising concern about the price Berlin may pay for its role as paymaster to a region racked by a crisis that has toppled governments in Greece and Italy.

"If Germany has to pay higher costs for its borrowing, it's obvious it cannot help the entire euro zone," said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.

"If German bond yields keep rising, that could even be a trigger for break-up of the euro."

Tokyo's Nikkei share average fell 1.8 percent to their lowest close since March 2009. Japanese markets were closed for a holiday on Wednesday, when other Asian markets had tumbled.

MSCI's broadest index of Asia Pacific shares outside Japan spent much of the trading day in positive territory before running out of steam.

The earlier gains had been partly driven by expectations that a slowdown in China will prompt Beijing to take monetary policy easing steps such as cutting banks' reserve requirement ratios, allowing them to lend more of their deposits.

"Anticipation of policy loosening in China after the bad flash PMI yesterday is spurring some short-covering," said Linus Yip, strategist with First Shanghai Securities in Hong Kong.

Wall Street shares fell more than 2 percent on Wednesday, and world stocks fell to a six-week low, on data showing slowing factory output in manufacturing titans China and Germany and weak consumer spending in top consumer the United States.

U.S. markets will be closed on Thursday for the Thanksgiving holiday.

GERMAN GLOOM

Germany's bond sale added to the gloom, knocking the euro down 1 percent. Depressed yields in Europe's last safe haven played a part, but analysts warned it also signaled a broader shunning of the region's financial system.

"The other part is that market makers don't want to have a position because of the very distressed nature of financial markets as a whole," said Marc Ostwald, strategist at Monument Securities. "There's certainly a partial element of 'they would rather not have euros' in there."

The single currency tottered to around $1.3360, up a bit less than 0.2 percent on Thursday, having fallen as low as $1.3318 in the previous session.

Against the yen it fell around 0.2 percent to a six-week low just below 103.0.

The inexorably widening euro zone crisis — which has pushed up risk premiums for Spanish, French, Italian and Belgian government bonds — is making it increasingly hard for European banks to access dollar funding in the money markets.

The stresses pushed dollar LIBOR rates, the benchmark for banks lending to each other, up for the 103rd straight session on Wednesday and has driven the cost of swapping euros into dollars to the most expensive levels since the global financial crisis in 2008.

In Asian credit markets, the Asia ex-Japan iTraxx investment grade index saw spreads widen around 10 basis points, reflecting heightened risk aversion.

U.S. crude oil rose 0.3 percent to around $96.60 a barrel, following on from a 2 percent slide on Wednesday, and Brent crude rose 0.6 percent to around $107.60.

London Metal Exchange copper rose 0.2 percent to around $7,250 a tonne, rebounding from a drop of more than 1 percent earlier in the session that had seen it fall to a one-month low around $7,100.

"The demand outlook is deteriorating," said David Thurtell, director of commodity research at Citigroup in Singapore.

"With so much sovereign debt uncertainty and with Western European austerity measures kicking in, copper is likely to trade in the $6,500 to $9,500 range over the period to end-2012."

(Additional reporting by Hideyuki Sano in Tokyo, Ian Chua in Sydney, Manolo Serapio Jr in Singapore and Umesh Desai of IFR in Hong Kong; Editing by Kim Coghill)

NEW YORK – The stock market fell Monday after a jump in Italy’s borrowing costs reminded investors of how much work remains to be done to contain Europe’s debt problems.

The Dow Jones industrial average lost nearly 75 points. Bank stocks fell the most. European markets also fell and the euro weakened against the dollar.

Major indexes closed higher last week as Greece and Italy moved to form new governments and took other decisive steps to get their debt troubles under control. However worrisome signs re-emerged Monday.

The Italian government had to pay 6.29 percent at an auction of five-year bonds, the highest rate since since 1997. Italy paid a much lower rate of 5.32 percent at a similar auction last month. That’s a sign investors are still concerned about Italy’s ability to repay its debts. Stocks tanked last Wednesday after key Italian borrowing rates jumped above 7 percent, a level widely seen as unsustainable.

Also Italy’s biggest bank, Unicredit, reported a $14.4 billion loss.

“The problems these countries are dealing with go well beyond their prime ministers,” said Dan Greenhaus, chief global strategist at the brokerage BTIG. “Italy didn’t get where it is in five minutes. And it’s not going to get out of where it is in five minutes. This is going to take months.”

The Dow fell 74.70 points, or 0.6 percent, to close at 12,078.98. Bank of America Corp. fell 2.6 percent and JPMorgan Chase & Co. fell 2.2 percent, the largest drops among the 30 large companies in the Dow.

The Standard & Poor’s 500 index fell 12.06 points, or 1 percent, to 1,251.79. The Nasdaq composite index fell 21.53, or 0.8 percent, to 2,657.22.

Three stocks fell for every one that rose on the New York Stock Exchange. Volume was very light at 3 billion shares.

Stocks have risen since early October on encouraging signs of progress in containing Europe’s debt crisis, stronger U.S. corporate earnings and better news on the U.S. economy. The S&P 500 has soared 13.7 percent since hitting its low for the year on Oct. 3.

That surge has drawn big investors back into the stock market and opened the door to a long line of companies waiting to go public. The flow of money from institutions into U.S. stock funds hit $7.3 billion last week, the third largest tally this year, according to fund tracker EPFR Global.

Angie’s List, a customer review website, Delphi Automotive and seven other companies are scheduled to go public this week. If they all wind up going through, it would be the biggest week for IPOs in four years, according to Renaissance Capital, an IPO advisory firm.

In corporate news, the airline Emirates placed an order for 50 Boeing 777s, one of the largest orders ever placed with the aircraft maker. Boeing Co. also picked up a new customer, Oman Air, which ordered six 787s. Boeing rose 1.5 percent.

J.C. Penney Co. fell 2.8 percent after reporting a quarterly loss. The department store operator said its results were weighed down by restructuring costs. The company also lowered its earnings outlook for the rest of the year.

Lowe’s Cos. rose 1.7 percent after the country’s second-largest home-improvement retailer reported revenue and earnings that beat analysts’ expectations.

The Dow has made gains in six of the past seven weeks, and is still up 1 percent for the month. The S&P 500 and the Nasdaq are slightly lower.

NEW YORK (Reuters) – Stocks fell on Monday as rising bond yields in Italy and other euro-zone countries reminded investors that despite changes in governments, the region's debt crisis could still spin out of control.

Banks posted the largest losses, but overall volume was unusually weak. The KBW bank index dropped 2.5 percent, with Bank of New York Mellon down more than 4 percent.

The S&P 500 found strong resistance after closing on Friday near its 200-day moving average and close to the top of a trading range the index has held for three months.

Initial relief over the appointment of a technocrat to head the new government in Italy after the resignation of Silvio Berlusconi gave way to worries that unpopular austerity measures will not be enough to fix the country's finances. For details see.

Benchmark yields in Italy, France and Spain edged higher from the end of last week and closed near session highs. Rising bond yields are being watched carefully because every rise in interest rates threatens the ability of Italy and other countries to finance themselves.

"That sign of a reversal of what had been a more favorable trend in Europe is what the (equities) market worried about today," said Jeff Kleintop, chief market strategist at LPL Financial in Boston.

"That has raised worries that European problems are not that much behind us."

Stocks have lately focused on headlines from Europe as traders react to the escalating sovereign debt crisis in the euro zone. Italian benchmark bond yields rose above 7 percent last week, a level that forced countries with a lower debt burden to seek bailouts. With debt of more than 2 trillion euros, Italy is considered too big to bail out.

Yields on 10-year Italian debt rose to 6.76 percent on Monday.

The Dow Jones industrial average dropped 74.70 points, or 0.61 percent, at 12,078.98. The Standard & Poor's 500 Index fell 12.07 points, or 0.96 percent, at 1,251.78. The Nasdaq Composite Index lost 21.53 points, or 0.80 percent, at 2,657.22.

At 5.5 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the third-lowest number so far this year and down more than 30 percent from the year's daily average of just over 8 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 16 to 5, while on the Nasdaq, about three stocks fell for every one that rose.

Stocks continued to track the euro, which fell more than 1 percent against the dollar.

Adding to the gloom in the region, industrial production in the euro zone fell in September, the most since early 2009. Output at factories in the 17-nation group declined 2 percent for the month.

LPL Financial's Kleintop said the data mostly confirmed the market's anticipation of a mild recession in the euro zone.

Italy's debt in the credit default swap market rose to a record at the close of 569 basis points, up from 525 basis points on Friday, according to data provider Markit. This means it would cost 569,000 euros per year to insure 10 million euros of Italian debt for five years.

French and Spanish CDs costs also rose to record highs, according to Markit.

Limiting losses on the Dow, Boeing Co shares rose 1.5 percent to $67.94 after the U.S. planemaker announced a large order.

Shares of Bank of America Corp dropped 2.6 percent to $6.05 as the lender plans to sell most of its remaining stake in China Construction Bank Corp for $6.6 billion in a move to raise capital.

Bank of New York Mellon Corp fell 4.5 percent to $20.55 after it said it expects to take a hit against earnings of up to $100 million in the fourth quarter.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)