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New York Markets Pre-Open: Euro fears hit Italy bonds; Bunds, Treasurys rise

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? Yen gains, euro weakens against dollar.

? 10-year Treasury yield stays above 3%.

? Italian bonds sell off on news populists discussed euro exit.

? Lira jumps on news of central bank meeting.

The dollar slipped against the yen and 10-year Treasury yields stayed above 3% as North Korea threatened to pull out of talks with the U.S. The euro fell and Italian bonds and stocks sold off as a draft coalition agreement indicated Italian populist parties had discussed rolling back European fiscal rules. Futures pointed to a flat opening for Wall Street.

The dollar depreciated 0.19% to ¥110.14 yen at 7:11 a.m. ET as North Korea canceled a meeting with South Korea in response to joint military exercises between South Korea and the U.S. The ten-year Treasury yield fell by 1 basis point to 3.067% after hitting 3.09% on May 15.

The rise in the Japanese currency came despite data showing the country's economy contracted by 0.6% annually in the first quarter. Japanese 10-year yields were little changed at 0.054% after the news, which seemed to leave the prospect of any reduction in the Bank of Japan's qualitative and quantitative easing program more distant still.

Italian bonds sold off, with 10-year yields climbing 10 basis points to 2.050% as a draft coalition agreement showed the populist Five Star and the far-right League parties had discussed ways for countries to leave the euro. The parties later said the document was outdated. The yield on German 10-year Bunds, a safe haven, fell 2 basis points to 0.6121%. The FTSE MIB stock index slid 1.75% in Milan. Shares in the country's biggest bank, UniCredit SpA, tumbled by 3.3%.

The euro slipped 0.38% against the dollar as annual inflation in the eurozone eased to 1.2% in April, adding to expectations of an extension of the European Central Bank's quantitative easing program beyond September.

The Turkish lira reversed early steep losses to gain 0.82% against the dollar following a report the central bank governor was set to meet President Recep Tayyip Erdogan. The currency has come under renewed pressure since the president told investors he wanted to take more control over monetary policy.

Brent crude oil slipped 0.66% to $77.91 a barrel on the ICE Futures Exchange, after probing $80 a barrel the previous day.

"Further upside could be seen to crude today if the monthly [Energy Information Administration] oil market report confirms strong [Organization of the Petroleum Exporting Countries] compliance to quotas in April (Saudi production seems especially low) and also a healthy rebound in U.S. industrial production," strategists at ING Research said.

The Euro Stoxx 50 fell 0.13% and the FTSE 100 added 0.14%. Japan's Nikkei 225 index fell 0.44%. The Shanghai SE Composite closed 0.71% lower.

Gold was little changed at $1,289.20 per ounce, after falling below support at $1,300 May 15. Rising bond yields mean there was "little sense for speculators to buy something that pays no interest," according to Fawad Razaqzada, a market analyst at Forex.com.

Investors awaited potential remarks from European Central Bank President Mario Draghi at an event in honor of outgoing ECB Vice President Vítor Constâncio.

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Drug discount program for hospitals needs more scrutiny, US Senate panel told

US grid operator told to plan for more risks, work with other sectors

Big US banks get boost from tax cuts, but analysts look for new catalysts

May retail market: Retail sales up, bankruptcies continue at a steady pace

CEO: Wintry weather weighs on Home Depot's Q1 garden sales

The day ahead:

8:30 a.m. ET — U.S. housing starts (Econoday consensus: 1.324 million)

8:30 a.m. ET — Canada manufacturing sales (Econoday consensus: 1.2% monthly)

8:30 a.m. ET — U.S. Federal Reserve's Raphael Bostic speaks

9:15 a.m. ET — U.S. industrial production (Econoday consensus: 0.6% monthly)

10:30 a.m. ET — U.S. EIA petroleum status report