View Full Version : Europe shares fall as global share sell-off continues

05-08-2011, 10:34
European markets have continued the steep share sell-off, with investors worried about both the eurozone debt crisis and the weak US economy.

In volatile trade, the UK's benchmark FTSE 100 index and Germany's Dax index were both down by about 2.5%.

In London, banking shares saw heavy falls, with Royal Bank of Scotland down 8%, and Lloyds Banking Group 3% lower.

Analysts spoke of "fear" affecting investment decisions, with investors unsure when losses would end.

In a morning of sharp fluctuations, shares in Madrid fell back but then recovered to be little changed. Rumours were circulating that the European Central Bank is preparing to buy Spanish and Italian bonds.

Concerns over the ability of governments to pay their debts - which has led to Greece, the Irish Republic and Portugal already being bailed out - has now spread to Spain and Italy. The gap between German bonds - the safest in Europe - and Spanish and Italian debt again reached a record since the euro was introduced in 1999. German Chancellor Angela Merkel is due to hold a telephone conference with French President Nicolas Sarkozy later to discuss the latest situation in the eurozone.

On Thursday, investor confidence was hit after European Commission President Jose Manuel Barroso warned that the eurozone's sovereign debt crisis was spreading, sparking fears that Italy and Spain might become engulfed in the problems. On Friday, the head of the Belgian central bank, Luc Coene, said that a buy-back of Italian and Spanish debt was possible - if Rome and Madrid pressed ahead with economic reforms.
'Under pressure'

Investors will now be focusing on US jobs data due out later on Friday as an indicator of the strength of the economy. "Fear is the major theme," David Cohen of Action Economics told the BBC. "People were cautiously optimistic that we would get back on track in the second half of the year. But with the US recovery stalling and the possible repercussions for the global economy, stock markets have been under pressure for a while." The long-running political battle over the US budget also led to concerns that the US, the world's largest economy, would lose its AAA debt rating.

The crisis has pushed markets into complicated territory. On Tuesday, Germany - the biggest economy in Europe - saw its bond yield drop below the inflation rate for first time since reunification. This suggests that investors are now so worried, they are willing to sacrifice a return on their investment to hold the least risky bonds in Europe. And the Swiss franc and the Japanese yen have surged so much that both countries have intervened to slow the spikes in currencies.

Oil prices continued to fall, as fears of a global economic slowdown hit prices of commodities. The prices of both US and Brent crude have fallen by more than 10% this week. Benchmark light sweet crude reached the lowest price since November last year.

Earlier on Friday, Asian markets had slumped with Japan's main index down 3.7% and Hong Kong's 4.6% lower. On Thursday in the US, the Dow Jones index had its worst day since December 2008, closing down 512.76 points, or 4.3%, at 11,383.68. US shares have fallen for nine of the past 10 days - and lost 6.4% in the past week. Wall Street's other leading indexes also slid, with the S&P 500 index falling 4.8% and the tech-heavy Nasdaq more than 5% lower.

source (http://www.bbc.co.uk/news/business-14416204)