LONDON, Sept 26, 2012 (AFP)
LONDON, Sept 26, 2012 (AFP)
European stock markets and the euro slumped Wednesday on heightened fears over a full bailout of debt-plagued Spain, and amid falling confidence in the US Federal Reserve’s latest stimulus plan.
Madrid’s IBEX 35 index tumbled 3.92 percent at close to stand at 7,854.40 points and London’s FTSE 100 index of top companies ended the day down 1.56 percent at 5,768.09 points.
In Frankfurt, the DAX 30 lost 2.00 percent to 7,276.51 points, while in Paris the CAC 40 slid 2.82 percent to 3,414.84 points. Milan lost 3.29 percent.
On Wall Street, in midday trade, the Dow Jones Industrial Average was dipped 0.15 percent, the S&P 500 lost 0.55 percent, while the Nasdaq Composite shed 0.84 percent.
The European single currency plunged to two-week lows of $1.2854, from $1.2902 on Tuesday.
“The eurozone crisis has flared up — this time protests in Madrid and a general strike in Greece have spooked the markets,” said analyst Kathleen Brooks at trading site Forex.com.
Sentiment was rocked by Tuesday’s violent protests in Spain, where clashes between riot police and anti-austerity protesters left more than 60 people injured in Madrid.
The debt-plagued Spanish government is due Thursday to adopt a 2013 austerity budget that could be a precursor to a full-blown bailout.
Across in Athens, Greek police clashed with masked youths during a nationwide strike in protest at a new round of austerity cuts introduced in return for vital EU-IMF loans.
“Spain is slowly becoming like Greece as the riots escalating in the country are slowly but surely resembling its smaller European counterpart that was the main trigger for the whole crisis,” said Capital Spreads analyst Simon Denham.
Markets braced for a request by Spain for financial aid, after Spanish Prime Minister Mariano Rajoy told the Wall Street Journal that Spain would seek a full state bailout if its borrowing rates stayed at unsustainable levels.
“It can only be a matter of time before Spain is forced into a bailout request,” added Michael Hewson, senior analyst at CMC Markets trading group.
Spain has cut a deal with the European Union for a rescue loan of up to 100 billion euros ($125 billion) for banks hobbled by bad loans extended before a 2008 property market crash.
But it has refused to be rushed into seeking a full-blown sovereign bailout until it knows the conditions. To avert such a rescue, Spain’s government was on Thursday set to unveil new cost-cutting measures.
The Madrid protests increased the pressure on Rajoy, who is already grappling with a fresh surge in borrowing costs and with pro-independence stirrings in Catalonia, which has called snap elections.
The country’s central bank meanwhile said that Spain’s recession was deepening, with economic output sliding at a “significant pace” in the third quarter of this year.
Against such a bleak outlook, the interest rate on Spanish 10-year sovereign debt rose above six percent — a level seen as being unsustainably expensive.
“We are seeing risk sentiment corrode across global markets as questions regarding the effectiveness of recent central bank policy action and persistent fears over the situation in the eurozone peripheral together have punched market sentiment back down to the ground,” said Ishaq Siddiqi, market strategist at ETX Capital traders.
Markets were also hit Wednesday by a Federal Reserve official’s doubts about the impact of the Fed’s third quantitative easing (QE3) programme since the financial crisis.
Charles Plosser, head of the Fed’s Philadelphia branch, said he was doubtful the QE3 bond-buying programme announced this month would have great impact on charging up the US economy, and warned that the Fed could lose credibility.
“Plosser put the cat among the pigeons,” said IG Index market analyst Chris Beauchamp, adding that “investors don’t like to see the QE rescue plan questioned.”
