European stock markets fell sharply yesterday on renewed concerns about the eurozone and global growth prospects owing to weak Chinese trade and US jobs data.

London’s benchmark FTSE 100 index dropped 2.24 per cent to 5,595.55 points on the first trading day for Europe’s leading market since last Thursday.

In Frankfurt, the DAX 30 lost 2.49 per cent to 6,606.43 points, and in Paris the CAC 40 fell 3.08 per cent to 3,217.60 points.

In Milan the FTSE Mib index dove 4.98 per cent lower as bank shares plunged, and Madrid fell 2.96 per cent after the government announced more spending cuts.

In foreign exchange trade, the euro slid to $1.3070 from $1.3106 late in New York on Monday.

“European markets have, not surprisingly, plunged today as the hangover effects of the last weeks disappointing. Non-Farm Payrolls was the initial trigger for the risk off sentiment,” said Brenda Kelly at CMC Markets UK.

The US Labour Department on Friday reported the US economy created only 120,000 jobs last month, while economists had been expecting upwards of 200,000 jobs to confirm that recovery was becoming self-sustaining.

The Dow fell one per cent on Monday when US investors got their first chance to react to the disappointing March labour data, and dropped further in midday trading yesterday.

“However, the renewed concerns in respect of Spain and Italy’s borrowing costs were the real catalysts for the sell off; with European banks enduring the worst of the negativity,” added Ms Kelly.

After a period of respite at the beginning of the year when the European Central Bank pumped a trillion euros into the region’s banks, the borrowing rates of most eurozone countries have begun to rise again.

The rate of return on Spain’s 10-year bonds rose to 5.940 per cent yesterday on the secondary market, with the spread of over four percentage points with German bonds a sign of a flare up in investor concern.

Spain’s borrowing rate had dropped to around 4.0 per cent earlier this year after hitting nearly 7.0 per cent at the height of the crisis late last year.

“Today (yesterday) has been a tale of rising eurozone bond yields, and falling markets,” said Rupert Osborne of IG Index in London.

Spain on Monday unveiled 10 billion in additional savings after announcing last month €27 billion in its 2012 budget. However “the strong fiscal tightening... may stoke fears of a deeper recession and potentially a Greek-style downward spiral in Spain,” warned economist Christian Schulz at Berenberg Bank.

In Italy, bank shares were hit particularly hard yesterday, with Unicredit dropping 8.10 per cent to 3.04 euros and Intesa Sanpaolo fell 7.94 percent to 1.137.

The yield on Italy’s ten-year bonds rose to 5.620 per cent from 5.447 per cent on Thursday, with the spread from German bonds widening to nearly four per cent.

Prime Minister Mario Monti has run into strong opposition to a reform of Italy’s labour laws which is considered key to boosting the country’s competitiveness.

Yesterday, Asian markets closed lower after the soft Chinese trade data added to an already sombre mood that had been generated by last week’s worse-than-forecast US jobs figures.

Tokyo closed down 0.09 per cent, Seoul slipped 0.13 per cent and Shanghai dropped 0.63 per cent.

China posted a trade surplus in March, reversing a massive deficit in February, but the figures showed that exports were still weak owing to economic woes in its major overseas markets – principally, Europe.

The country recorded a trade surplus of $5.35 billion in March, as exports rose 8.9 per cent. However, imports rose just 5.3 per cent, raising concerns about the state of the domestic economy.

The Dow Jones Industrial Average lost 1.19 per cent to 12,775.65 points in midday trade.

The broader S&P 500 fell 1.48 per cent to 1,361.78 points, while the tech-rich Nasdaq gave up 1.63 per cent to 2,997.40 points.

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