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European stocks waver amid Spanish and German woes

European stock markets fell in choppy trade yesterday, as the euro hit another record low versus the dollar on persistent eurozone tensions with Spanish borrowing costs still at danger levels.

Markets in London, Frankfurt and Paris ended lower after struggling all session to find direction.

In Spain and Italy, the focal point for most trader worry these days, share prices suffered badly.

“It seems markets this week have recognised that Spain is following Greece’s path, with Spain’s bond yields at levels that forced policy makers to step in to help Greece and Portugal,” said Ishaq Siddiqi, a market strategist at ETX Capital.

At the close, London’s benchmark FTSE 100 index of top companies was down 0.63 per cent at 5,629.09 points, Frankfurt’s DAX 30 fell 0.45 per cent to 6,390.41 points, while in Paris the CAC 40 dropped 0.87 per cent to 3,074.68 points.

Madrid stocks, meanwhile, plummeted 3.58 per cent to their lowest level since April 2003. Milan shares ended down 2.7 per cent.

Europe’s main indices had already lost between 2.0 and 3.2 per cent on Monday over speculation that embattled eurozone member Spain could soon require a full state bailout.

In yesterday’s trade, the euro fell as low as $1.2059, its lowest level since 11 June, 2010, before recovering slightly to $1.2066 from $1.2137 in New York late on Monday.

The dollar eased to 78.21 Japanese yen from 78.37 yen.

US stocks also fell yesterday on mixed corporate earnings reports and eurozone worries, with the Dow Jones Industrial Average down just 0.92 per cent and the tech-rich Nasdaq losing 0.52 per cent in midday trade.

In Paris, “traders mostly stood aside, worn out by a flow of never-ending bad news,” said Alexandre Baradez of Saxo Bank.

Spain had to pay higher rates yesterday to raise €3.05 billion in short-term funds, coming under pressure again on the markets on concerns that Madrid will need a full sovereign debt bailout.

The Treasury said it sold three-month bills at 2.434 per cent, up from 2.362 per cent at the last similar auction in late June, with six-month bills rising sharply, to 3.691 per cent from 3.237 per cent.

It said bids came to €9 billion, reflecting strong demand for the debt, which carries very high rates for such short maturities.

Spain’s long-term borrowing costs have soared in recent days to well above the danger line of seven per cent, hitting levels that forced Greece, Ireland and Portugal to seek EU-IMF bailouts.

The yield or rate of return on the benchmark 10-year Spanish government bond was higher again yesterday, at 7.621 per cent.

Compounding problems, debt-laden Catalonia, the second biggest Spanish region, will join the likes of Valencia and likely others to ask the federal government for funds, the region’s finance minister told BBC radio yesterday.

The eurozone crisis took another twist on Monday as Moody’s made a first step toward stripping Germany of its coveted triple-A credit rating, cutting the outlook for Europe’s largest and most pivotal economy to “negative”.

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