April 8 (Bloomberg) -- Greek bonds dropped, sending the yield premium over German debt to the widest since the euro’s inception, and stocks tumbled on speculation that the bailout of Europe’s most indebted nation will unravel. The yen rallied.

The Greek 10-year spread to benchmark German bunds widened to 436 basis points at 8:15 a.m. in New York. Greece’s ASE Index of stocks slid as much as 5.2 percent, the most in four months, and the cost of insuring against a default by the nation climbed to a record. The Stoxx Europe 600 Index tumbled 1.1 percent and futures on the Standard & Poor’s 500 Index slipped 0.4 percent. The euro weakened for a fifth day against the dollar, and the yen advanced versus all of its 16 most-traded counterparts.

“There is now increasing uncertainty surrounding Greece’s ability to raise the required amount of funding without recourse to the emergency lending facility provided by euro member states and the IMF,” Steven Mansell, a strategist at Citigroup Inc. in London, wrote in a report. “This raises the question of whether or not tensions will also rise in other peripheral markets. We think that some form of contagion is inevitable.”

Finance Minister George Papaconstantinou said Greece doesn’t need additional austerity measures, after the European Union and the International Monetary Fund agreed on terms for an emergency support package last month. Europe’s economy unexpectedly stagnated in the fourth quarter, and Japanese machinery orders and U.S. consumer credit slumped, adding to investor concern that the economic rebound may falter.

Borrowing Costs Surge

Declines in Greek bonds pushed the yield on the government’s 10-year note up 32 basis points. Credit-default swaps on Greece’s government debt increased to a record 4.66 percentage points, according to CMA DataVision prices.

Concern other indebted nations may struggle to meet their funding needs pushed Portugal’s 10-year yield 10 basis points higher to 4.35 percent.

Greek banks slumped, with EFG Eurobank Ergasias SA, the country’s second-largest lender, tumbling 9 percent for the biggest decline on the Stoxx 600. Papaconstantinou told ANT1 television that additional budget cuts designed to trim a budget deficit that reached 12.9 percent of gross domestic product last year won’t be needed so long as existing measures are implemented “correctly.”

The European Central Bank left interest rates at a record low as the Greek fiscal crisis complicates its withdrawal of emergency stimulus measures. The Frankfurt-based ECB kept its benchmark interest rate at 1 percent, as predicted by all 62 economists in a Bloomberg News survey. A separate poll shows the rate may stay there until the first quarter of next year.

ECB President Jean-Claude Trichet has already announced changes to the central bank’s collateral rules to help Greece.

Emerging Markets

The MSCI World Index of 23 developed nations’ stocks fell 0.5 percent while the MSCI Emerging Markets Index declined for the first time in 10 days, sliding 0.8 percent. In Europe, 18 of 19 industry groups in the Stoxx 600 declined, led by basic resources shares and banks. BHP Billiton Ltd., the world’s biggest mining company, dropped 1.6 percent in London. The MSCI Asia Pacific Index lost 0.6 percent, its first drop in six days.

The decline in U.S. futures indicated the S&P 500 may extend yesterday’s 0.6 percent drop. Initial jobless applications fell by 4,000 to 435,000 in the week ended April 3, according to the median forecast of 47 economists surveyed by Bloomberg News before a Labor Department report due at 8:30 a.m. in Washington.

The euro weakened 0.7 percent compared with the yen and 0.3 percent versus the dollar. The yen advanced 1.1 percent against both the rand and the New Zealand dollar as investors sought the relative safety of the Japanese currency at the expense of higher-yielding assets.

German Bunds

German government bonds gained, with the yield on the two- year bund dropping 4 basis points to 0.91 percent. Bunds are Europe’s benchmark debt securities because Germany is Europe’s biggest economy.

U.S. 30-year bond yields rose 1 basis point to 4.75 percent before the government sells $13 billion of the securities today. Ten-year notes were little changed after surging yesterday following an auction that drew the strongest demand in at least 16 years. The yield was at 3.86 percent.

Copper fell for a second day, declining 1.5 percent to $7,830 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also retreated. Gold fell 0.3 percent to $1,145.90 an ounce as the dollar strengthened, and crude oil dropped 0.8 percent to $85.40 a barrel in New York.