European stock markets fell yesterday as the banking sector slumped on concerns over exposure to Greece after a eurozone meeting failed to resolve the nation’s debt crisis, dealers said.

At the close of trading London’s benchmark FTSE 100 index of top shares was down 0.38 per cent at 5,693.39 points. In Frankfurt, the DAX slid 0.19 per cent to 7,150.21 points while in Paris the CAC 40 fell 0.63 per cent at 3,799.66 points.

“Uncertainty over the Greece loan decision has seen the FTSE 100 revisit its lows of last week,” said IG Index chief market strategist David Jones.

“The banking sector has taken a hammering on the news, with Lloyds among the biggest fallers.”There was also bad news for Italy, with the main Milan stock exchange index falling by more than two per cent after Moody’s rating agency warned it may cut the country’s credit rating in view of strains in the economy.

Banking stocks were among the worst affected, with shares in Banca Popolare di Milano plunging 7.39 per cent to €1.628 and Banca Monte dei Paschi di Siena down 2.59 per cent to €0.583.

“Italy’s has come under fire over the weekend as Moody’s issues a warning that its credit rating could be deteriorating, sparking further fear with investors as worries of contagion spreads across Europe,” added sales trader Simon Furlong at Spreadex.

The banks also suffered in London, with the Lloyds Banking Group dropping 2.55 per cent and the Royal Bank of Scotland a whopping 4.42 per cent on the day.

Eurogroup head Jean-Claude Juncker also warned on Saturday that the euro crisis hitting Greece and others could affect Italy and Belgium, saying in an interview with a German daily: “We are playing with fire.”

“In signs of stress within the European banking system, some banks have started to reduce the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system,” said CMC Markets analyst Michael Hewson.

After crunch talks aimed at averting Greek default – and the possible domino effect across their shared currency area – eurozone finance ministers have told Greece that they and the IMF would release €12 billion of loans in “mid-July”.

But in return, squabbling Greek lawmakers must endorse stringent austerity measures aimed at reining in profligate state spending, or lose the cash.

Athens has struggled under the weight of huge debts and rocketing bond prices, with ongoing talk of its inability to pay further worsening the situation and sending jitters around the financial world.

On other European bourses the movement was also negative, with Lisbon leading the way down by losing 2.02 per cent, just topping Milan’s 2.01 per cent drop.

The Madrid bourse fell 0.96 per cent, Brussels 0.81 per cent and Swiss stocks by 0.51 per cent. In Amsterdam the market was down 0.44 per cent.

There was better news across the Atlantic where US stocks climbed in early trading, shaking off concerns about the Greek debt crisis, even as US banks were battered by fears of contagion from Europe’s financial sector.

The Dow Jones Industrial Average had risen 0.76 per cent to 12,095.03 by 16:20 GMT. The broader S&P 500 pushed up 0.59 per cent to 1,279.04 with the tech-heavy Nasdaq Composite also up 0.59 per cent to 2,631.97 points.

Asian stock markets finished mixed yesterday as earlier gains were pared by the concerns over Greece’s debt crisis. Tokyo was flat, adding just 2.92 points to close at 9,354.32, Sydney shed 0.74 per cent, or 33.2 points, to finish at 4,451.7 and Seoul closed 0.60 percent, or 12.28 points, lower at 2,019.65. Hong Kong fell 0.44 per cent, or 95.75 points, to 21,599.51.

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