Global markets mixed, nervous on euro debt

Global stock markets were mixed in nervous trade yesterday after a Spanish bank bailout sparked fresh concerns the eurozone debt crisis still has a long way to go and will hit a tentative recovery.

Dealers said that, after a reasonably positive start in Asia, the day turned sour in Europe as investors desperate for some good news instead had to face up to a Spanish regional bank bailout, reportedly to cost €2.7 billion.

An IMF warning that Madrid should add major labour market and banking sector reforms to its austerity measures did not help, highlighting how much more work Spain and other eurozone countries have to do to get out of the debt crisis.

The new British government's announcement of a £6 billion (€6.96 billion) worth of spending cuts, and more to come in Italy after a Cabinet meeting today, made for a muted day.

Dealers said better-than-expected US existing home sales figures for April did give Wall Street a boost in early trade, building on Friday's gains of more than one percent, but the upturn soon faded.

They said fears the eurozone debt crisis will force governments to cut back further, thereby hurting growth, spooked investors worried that Europe could easily fall back into recession, taking the global economy with it.

In New York, the blue-chip Dow Jones Industrial Average was off 0.22 per cent at around 1600 GMT, with the tech-rich Nasdaq Composite up 0.41 per cent.

"Stocks are under pressure... as the European debt crisis remains a drag on sentiment, exacerbated by the weekend's government bailout of a Spanish financial firm," Charles Schwab & Co said in a client note.

"The stock market has been swinging all over the place the past three weeks and we look for more of the same," Well Fargo chief market strategist Al Goldman said.

"We still believe the market will be higher by year-end but the big party is over unless we get some really positive surprise news," he said.

The Bank of Spain took over regional savings bank CajaSur at the weekend, adding to the strain on the public finances and stoking fears other similar banks there and elsewhere might also need help.

In Europe, the markets closed narrowly mixed. London's benchmark FTSE 100 index of leading shares edged up 0.13 per cent to 5,069.61 points.

In Paris, the CAC 40 was virtually unchanged at 3,430.93 points and in Frankfurt the DAX lost 0.40 per cent to 5,805.68 points.

Madrid lost 1.27 per cent and Italy was among the worst performers on the day, down 2.59 per cent.

In foreign exchange trade, the euro was down sharply at $1.2405 from $1.2563 in New York late Friday, reflecting the wider fears over the whole eurozone project.

The euro plunged to $1.2144 last Wednesday, its lowest level in four years, with many analysts saying it could fall further over the course of the year, with dollar parity a distinct possibility.

In Asian trade earlier Monday, Tokyo slipped 0.27 per cent, overshadowed by persistent worries about the health of eurozone economies, dealers said.

Hong Kong picked up 0.62 per cent and Chinese shares closed up 3.48 per cent, their biggest single-day gain in more than seven months on bargain-hunting after recent sustained losses.

Sydney jumped 2.09 per cent on the back of Wall Street's strong Friday lead.