Most European shares fell yesterday, Spanish bond yields spiked to the danger level of seven per cent and the euro briefly hit a two-year low point in volatile deals.
London’s FTSE 100 index slipped by 0.62 per cent to close at 5,627.33 points, Frankfurt’s DAX 30 was off by 0.35 per cent at 6,387.57 points and in Paris the CAC 40 edged 0.38 per cent lower to 3,156.80.
Madrid’s benchmark IBEX 35 index of leading shares gave up 0.75 per cent to 6,688.30 points but Rome’s FTSE Mib gained 0.59 per cent to 13,813 points.
The euro traded for $1.2305, up from $1.2287 late on Friday in New York after falling as low as $1.2251 in Asian trade, its lowest point since July 1, 2010.
ETX Capital strategist Ishaq Siddiqi said European stock markets slumped following remarks by European Central Bank president Mario Draghi before the European Parliament’s economic and monetary affairs committee.
“What really worried the markets was his comment on the ESM not being ready to recapitalise banks by the end of the year, but ‘we are going as fast as we can’,” Mr Siddiqi said.
He referred to the European Stability Mechanism, an EU financial rescue fund that is to be able to directly recapitalise distressed banks without adding to the debt load carried by host nations.
Mr Draghi also reiterated the ECB’s view was that there would be a “weakening of growth and heightened uncertainty” in the second quarter of 2012. He added that the euro area would “recover gradually, albeit with dampened momentum.”
In New York, US stocks dipped in midday trade following those comments and weaker signals on the economic prospects for China and Japan. The Dow Jones Industrial Average was down 0.56 per cent to 12,7701.40 points.
The S&P 500 lost 0.53 per cent to 1,347.53, while the tech-rich Nasdaq gave up 0.49 per cent to 2,922.98.
The S&P’s weakness came “in response to weak economic readings out of China and Japan,” according to the Hightower Report.
In China, data showing the rate of inflation slowed in June opened the door to new government action to boost growth.
However, the news failed to lift markets amid fears that indicators later this week would show more evidence of a slowdown.
Hong Kong closed 1.88 per cent lower, Shanghai dived 2.37 per cent and Tokyo lost 1.37 per cent in value.
Japanese shares were hit by poor domestic data.
In Brussels, eurozone finance ministers met under pressure to push ahead quickly with measures to tackle the region’s sovereign debt crisis, as market sentiment veered towards the sceptical once again.
Investors remain anxious that the eurozone debt crisis, which has already devastated Ireland, Greece and Portugal, could spread to Spain and Italy.
In a gloomy omen, the price Spain must pay to borrow for 10 years rose sharply to 7.023 per cent yesterday, from 6.912 per cent late on Friday.
“Eurozone finance ministers meet in Brussels, ostensibly to build on the decisions announced at the summit two weeks ago,” said IG Index analyst Chris Beauchamp.
“As if to underline the urgency of their discussions, yields for Spanish and Italian bonds are on the march again, although this latest meeting is likely to end with a statement of intent but little else.”
European leaders had hailed a June 28-29 EU summit as a breakthrough, promising fresh capital for Spain’s struggling banks, a European bank union to keep the lenders in line and making it easier for the ESM to help countries in trouble.
But after an initially euphoric response, investors have switched tack, pushing Spanish long-term borrowing costs back up to the kind of sky-high rate that forced Greece, Ireland and Portugal into massive EU-IMF bailout deals.
Responding to the turn of events, Spanish Prime Minister Mariano Rajoy announced on Saturday that Madrid would take additional steps soon to cut its public deficit and called for progress on the summit measures.
As the positive gloss on the June 28-29 summit wore thin, International Monetary Fund chief Christine Lagarde warned on Friday that the global economy was slowing because Europe is not doing enough to fix the debt crisis.