European stocks fall on Spanish debt fears

Europe’s main stock markets dropped sharply yesterday, wiping out gains from the day before, as fears that the eurozone debt crisis was resurfacing in Spain offset ssssssanother round of solid data from the US.

At the close, London’s benchmark FTSE 100 index of top companies fell 0.62 per cent to 5,838.34 points, Frankfurt’s DAX 30 dropped 1.05 per cent to 6,982.28 points and in Paris the CAC 40 slumped 1.62 per cent to 3,406.78 points.

Madrid’s Ibex 35 plummeted 2.71 per cent and Milan’s FTSE Mib index lost 2.04 per cent as Italy too came back into focus in the eurozone debt crisis.

The European single was firmer, however, at $1.3338, up from $1.3319 in New York late on Monday. The dollar rose to 82.17 Japanese yen from 82.06 yen.

Meanwhile, data showed an increase in US factory orders in February but left Wall Street unmoved as investors opted for caution ahead of the publication of the Federal Reserve’s latest policy-meeting minutes. US factory orders rose 1.3 per cent to $468.4 billion for the month, slightly less than expected.

The blue-chip Dow Jones Industrial Average was down 0.33 per cent at around 1600 GMT, the tech-heavy Nasdaq was flat and the S&P 500 fell 0.39 per cent. European stocks had rallied on Monday in a bright start to the second quarter as upbeat Chinese and US manufacturing data offset poor European figures.

But Global Equities trader Xavier de Villepion said Monday’s gains “took place in a vacuum and could not be maintained,” leaving difficulties in Spain to weigh on sentiment.

News that Spanish unemployment had hit a new high in March and that Spain’s public debt will soar more than 10 percentage points this year to 79.8 per cent of Gross Domestic Product fuelled fears that the eurozone’s troubles were far from over.

“Recent news on the eurozone economy has dampened hopes that that the (European Central Bank’s) longer-term refinancing operations (LTROs) in December and February had largely solved the euro-zone’s economic and fiscal problems,” a note from Capital Economics said.

“Activity surveys like the Purchasing Managers’ Index suggest that the (eurozone) economy contracted for a second consec-utive quarter in (the first three months of 2012), while the news on the labour market and bank lending has also deteriorated,” it said.

Spain’s latest unemployment figures were released on the same day that Budget Minister Cristobal Montoro presented his government’s 2012 budget to lawmakers who must approve tough new spending cuts worth €27 billion.

The budget raised various taxes and froze wages of public sector employees but spared jobless benefits and pensions amid growing public anger at the dire econ-omic situation.

The jolt from Spain came after a solid first quarter on the financial markets.

“The gain for the FTSE over the first quarter was 3.5 per cent and this compares to 8.0 per cent for the CAC, 18 per cent for the DAX and 12 per cent for the S&P 500,” said analyst Andrew Crook at Sucden Financial Private Clients.

“The main focus has been on global growth prospects as well as eurozone sovereign debt concerns.

“Towards the end of the quarter, Middle East tensions surfaced together with the fear of a rising oil price which in turn may impact on growth.

“The belief that the American economy is growing compared to our own is reflected in the larger gain for the S&P versus the FTSE, with the strong manufacturing base of the German economy contributing to an 18-per cent gain in the DAX over the same period.”