Europe’s main stock markets tumbled yesterday and the euro hit a new four-month dollar low as worries spiked over the eurozone debt crisis that is plaguing Greece and now circling Spain.
London’s benchmark FTSE 100 index of top companies lost 1.24 per cent to 5,338.38 points, while in Frankfurt, the DAX 30 dropped 1.18 per cent to 6,308.96 points, and in Paris the CAC 40 fell 1.20 per cent to 3,011.99 points.
Milan’s FTSE Mib tumbled 1.46 per cent and Madrid’s IBEX 35 slumped 1.11 per cent.
In foreign exchange deals, the European single currency nosedived to a new four-month low at $1.2667. It later recovered to $1.2704, still down from $1.2715 late in New York on Wednesday.
The dollar dipped to a three-month low of 79.26 yen, before later recovering to buy 79.42 yen, down from 80.32 yen on Wednesday.
“Markets are worried about eurozone bank deposit runs and an escalating banking crisis,” VTB Capital economist Neil MacKinnon told AFP.
Shares in Spain’s state-rescued lender Bankia plunged yesterday on the back of newspaper reports that clients had withdrawn more than one billion euros in the past week, while Greeks have also reportedly stepped up pulling funds out of their banks.
Spain’s daily newspaper El Mundo reported that Bankia managers told the board the bank had lost a “similar amount” of deposits this week as the €1.16 billion withdrawn by clients in the first quarter of the year.
Spain’s fourth-largest bank had €112 billion in deposits from clients at the end of the first quarter.
It shares plunged by over a quarter at one point but later recovered to show a loss of 14.08 per cent for the day at €1.42.
In another gloomy omen, official data confirmed that Spain sank into recession with a 0.3 per cent contraction in the first quarter of 2012, matching the decline of the previous quarter.
Spain raised €2.494 billion in a sale of three- and four-year government bonds yesterday, but was forced to pay higher rates in a sign of mounting concern over the country’s debt position.
Meanwhile, Germany’s benchmark 10-year bond saw its own rate reach a new record low of 1.420 per cent as investors fled to financial safe-havens.
“As we have said all along, the biggest risk is Spain,” said research director Kathleen Brooks at trading site Forex.com.
Investors remain extremely anxious that the eurozone debt crisis, which resulted in bailouts for Ireland, Greece and Portugal, could also sink Spain or Italy.
Despite boosting financial defences, markets are sceptical that the eurozone could rescue Spain, its fourth-largest economy, especially if its third-largets economy Italy also came under pressure.
“Confidence in European equities (is) quickly depleting, this time after the European Central Bank admitted it had stopped providing liquidity to some Greek banks that were under-capitalised,” said analyst Craig Erlam at trading group Alpari.