By Gavin Serkin Feb. 4 (Bloomberg) -- Stocks and bonds fell in Spain, Portugal and eastern Europe on concern governments will struggle to fund their budget deficits as spending cuts in Greece trigger strikes. The dollar rallied. Portugal’s PSI-20 Index slumped 4 percent, the most in 14 months, at 11:43 a.m. in London. Spain’s IBEX Index dropped 2.6 percent to the lowest level since August and credit-default swaps on Hungary climbed to a record. Futures on the Standard & Poor’s 500 Index slipped 0.7 percent. The dollar strengthened against all but one of its 16 most-traded peers. The pound pared declines after the Bank of England announced a pause in its asset-purchase program. The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with the worst shortfalls. Spanish borrowing costs rose at a sale of three-year notes today and Portugal scaled back an auction of Treasury bills yesterday. “The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking. The MSCI World Index of 23 developed nations’ stocks fell 0.5 percent as Greece’s ASE Index lost 1.9 percent on concern plans for a strike by the country’s biggest union show Prime Minister George Papandreou may not win enough support in parliament for spending reductions. Piraeus Bank SA, Greece’s fourth-biggest lender, dropped 3.1 percent, while Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, declined 4.4 percent. Europe’s Dow Jones Stoxx 600 Index slipped 0.9 percent. Futures Fall U.S. stock futures fell before a Labor Department report at 8:30 a.m. New York time that may show initial jobless claims declined last week. Other reports may show factory orders rose 0.5 percent in December and worker productivity kept increasing in the fourth quarter. The European Central Bank left its benchmark interest rate unchanged at a record low of 1 percent. The MSCI Emerging Markets Index dropped 1.2 percent, snapping a three-day rally. Poland’s WIG 20 Index fell 1.4 percent after the European Commission said the government’s budget gap may widen to a 15-year high of 7.5 percent of gross domestic product in 2010, from 6.4 percent last year, without “sizeable” measures. The Budapest Stock Exchange Index lost 1.1 percent after the opposition Fidesz party, the favorite to win general elections in 10 weeks, said the country faces a continuing recession and mounting debt, and has an unrealistic budget deficit target. Hungary Premium The extra yield investors demand to own Hungarian sovereign and quasi-sovereign bonds jumped the most in eight months, rising 29 basis points to a two-month high 2.59 percentage points more than similar-maturity U.S. Treasuries, according to JPMorgan Chase & Co.’s EMBI Global indexes. Portugal led declines in government bonds, with the premium investors demand to hold the securities instead of benchmark German bunds widening 10 basis points to 157 basis points, the biggest difference since March. Spain sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued Dec. 3. Credit-default swaps on Portugal’s government debt soared 15 basis points to a record 211, according to CMA DataVision prices. Contracts on Greece jumped 18 basis points to 415.5, Spain increased 12 basis points to 164, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5. Kiwi Falls The dollar gained against high-yielding currencies, adding 1.1 percent versus the New Zealand dollar and 0.6 percent against the South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.3 percent. The New Zealand dollar declined after a government report showed the unemployment rate climbed to a 10-year high. The Australian dollar dropped because retail sales unexpectedly fell in December for the first time in five months. Crude oil for March delivery fell 68 cents, or 0.9 percent, to $76.30 a barrel in electronic trading on the New York Mercantile Exchange after a U.S. Energy Department report yesterday showed a bigger-than-forecast weekly increase in crude inventories. Lead for delivery in three months fell 0.8 percent to $2,005.75 a metric ton on the London Metal Exchange. Gold for immediate delivery retreated 0.6 percent to $1,103.02 an ounce. To contact the reporters for this story: Gavin Serkin at gserkin@bloomberg.net

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