European stock markets close lower, euro steady

European stock markets closed lower yesterday in choppy trade as investors reacted nervously to German comments that Greece might have to restructure its debt, stoking fresh fears over the eurozone.

Dealers said an unexpected jump in US new unemployment claims also hit sentiment, denting confidence in the US economic recovery after recent jobs data had been much more encouraging.

Greek money market rates jumped sharply after German Finance Minister Wolfgang Schaeuble suggested that Athens might have to restructure its debt, meaning investors would lose out and touching a sensitive nerve.

Although careful to say any such restructuring would be voluntary, the mere fact that Mr Schaeuble raised the issue stoked market jitters over the eurozone debt crisis which has so far claimed Greece, Ireland and Portugal.

The European Commission has until now ruled out any restructuring of Greece’s public debt of some 340 billion.

In London, the FTSE 100 index of leading shares closed down 0.78 percent at 5,963.80 points. In Paris, the CAC 40 lost 0.90 per cent to 3,970.39 points and in Frankfurt the DAX fell 0.44 per cent to 7,146.56 points.

The euro was under pressure from Schaeuble’s comments but picked up against the dollar after US new jobless claims rose an unexpected 27,000 to 412,000, snapping a steadily improving sequence over recent weeks.

In late London trade, the euro was higher at $1.4452 from $1.4440 in New York late Wednesday while the dollar slipped to 83.30 yen from 83.79 yen.

Greek 10-year benchmark bond yields – the rate of return for investors – jumped to 13.13 per cent from 12.82 per cent on Wednesday while two-year rates were above 17 per cent.

Dealers say such levels show the market believes Greek debt will be restructured at some point, with investors thereby having to take either direct losses or be repaid over a longer time.

In Paris, Guillaume Garabedian at Meeschaert Gestion Privee said there was “great uncertainty over Greek debt,” while inflation concerns were also weighing on sentiment.

On the corporate front, the main news was the announcement by Swiss-based commodities giant Glencore that it would raise up to $11 billion via a stock market listing in London and Hong Kong, the largest share offer so far this year.

The listing is a play on the global commodities story and comes just as Goldman Sachs has said it feels the market has topped out for now –although it remains a sound bet for the longer term.

British energy giant BP slipped 0.79 per cent as it held a stormy shareholders meeting and extended the deadline for a share swap deal with Russian oil giant Rosneft.

In New York, stocks fell on the jobless claims figures which undercut hopes the US economy had turned a corner, with employment on an upward trend.

The blue-chip Dow Jones Industrial Average was down 0.29 per cent at around 1600 GMT and the tech-heavy Nasdaq Composite fell 0.49 per cent.

The US Labour Department said the jump in new jobless claims reflected a cyclical trend that is normal at the end of a quarter but investors were only partly consoled by that reading.

“Given the underlying downward trend we are inclined to see it as a one-time fluke, though we will be happier if we see a clear reversal next week,” said Ian Shepherdson of High Frequency Economics.