Euro-region finance ministers forced depositors in Cypriot banks to share in the cost of rescuing the island nation, reducing the cost of the bailout by 5.8 billion euros ($7.5 billion) to 10 billion euros. The country accounts for less than half a percent of the 17-nation euro-area economy.
US markets rallied from their lows however, significantly paring the losses. The Dow Jones shed 62 points (-0.4%) to end at 14,452, whilst the S&P fell nine points (-0.6%) to close at 1,552.
On the economic front, the homebuilder sentiment index declined to 44 in March from 46 in the month prior, according to the National Association of Home Builders, falling to the lowest level in five months.
Economists polled by Reuters expected a gain to 47. A reading below 50 indicates more builders view market conditions as poor than favourable.
In the commodity space, gold jumped to a two-week high, topping $1,600 an ounce, as concern that Europe’s debt crisis will escalate increased the appeal of the metal as a haven.
Gold futures for April delivery rose 0.8% to settle at $1,604.60 on the Comex in New York. Crude oil for April delivery rose 29 cents (+0.3%) to $93.74 a barrel on the NYMEX, the highest settlement since 20 February.
It was a volatile night for currencies, with the euro sliding the most in 14 months against the US dollar after a proposed levy on bank deposits in Cyprus threatened to worsen the European debt crisis.
Elsewhere, the British pound strengthened to a five- week high against the euro after the imposition of a levy on bank deposits in Cyprus threatened to throw Europe back into crisis, fuelling demand for U.K. assets as a haven.
Looking ahead, the US Fed is scheduled to hold a two-day meeting later this week. Investors will be watching for any signs that the central bank could start winding down its quantitative easing program.
The Fed’s meeting will culminate with the release of its policy statement, economic forecasts and a press briefing by Fed Chairman Ben Bernanke on Wednesday night, Australian time.
Today’s session will bring us the latest monetary policy meeting minutes from the RBA, slated for release at 11:30am, AEDT.