European stock markets tumble

Europe’s main stock markets tumbled yesterday as sentiment was dampened by US data showing an unexpected jump in the weekly initial claims for unemployment benefits, dampening recovery hopes.

London’s FTSE 100 index of leading shares closed 1.73 per cent lower at 5,211.29 points. In Paris, the CAC 40 fell 2.07 per cent to 3,572.40 points and in Frankfurt the DAX was down percent 1.8 per cent at 6,075.13

The Stoxx 50 index of leading eurozone companies fell 1.97 per cent to 2,675.02 points.

Europe’s markets took their cue from Wall Street, where stocks fell after US officials said the number of Americans filing new weekly claims for jobless benefits jumped to 500,000, the highest level in nine months.

The Dow Jones Industrial Average was down by 1.70 per cent at around 1630 GMT, ending a two-day winning streak, while the tech-rich Nasdaq composite index declined 1.87 per cent and the broader S&P 500 index shed 2.04 per cent.

“Today’s news on the US economy has been nothing but awful,” said Paul Ashworth, senior US economist at the Capital Economics consultancy in London.

US unemployment claims in the week to August 14 increased by 12,000 from the previous week’s revised figure of 488,000 – and came well above most economists’ expectations of 475,000.

It was the third straight week in which claims have risen, and underscores the threat posed by unemployment on the recovery from the worst US recession in decades.

“The recovery is clearly slowing and, under those circumstances, we would expect claims to rise,” added Mr Ashworth.

In London, “the biggest fallers were the usual suspects when risk aversion takes hold with the banks and resource stocks taking a beating as recovery fears weighed on commodity prices,” said Michael Hewson, a CMC Markets analyst.

“Gold continues to rise on safe haven buying,” he added.

In Asia, where stock markets had closed before the US data was released, hopes that the Japanese central bank will announce measures to stem the yen’s rise lifted the dollar while also giving a boost to markets.

Traders bought up the dollar after a report that the Bank of Japan will consider steps to prevent any further strengthening of the nation’s currency, which had hit a 15-year high against the US unit last week.

Sentiment was also stoked after Japanese Finance Minister Yoshihiko Noda reiterated at a regular press briefing that he would closely watch the foreign exchange market.

The Tokyo market rallied 1.32 per cent yesterday, with exporters, who suffer from a strong yen, the beneficiaries.

Confidence that upcoming earnings data will be strong helped Hong Kong to finish 0.24 per cent higher, while Shanghai rose 0.81 per cent.

Elsewhere in Europe, Amsterdam fell 1.62 per cent, Brussels dropped 1.53 per cent, Madrid fell 1.47 per cent, Milan fell 2.05 per cent and Swiss stocks were down 1.28 per cent.