European stock markets slid yesterday after Germany and the European Central Bank dampened hopes for powerful action to fix the eurozone debt crisis, but the euro managed to climb against the dollar.
European markets had advanced in early trading on a media report that the ECB would intervene in debt markets to keep government borrowing costs, but turned down after ECB and German officials dismissed the story.
London’s FTSE 100 index of top companies closed down 0.48 per cent at 5,824.37 points, while in Paris the CAC 40 slid 0.22 per cent to 3,480.58 points and in Frankfurt the DAX 30 dipped by 0.10 per cent to 7,033.68 points.
Milan fell 1.01 per cent and Madrid dropped 1.21 per cent.
In foreign exchange transactions, the euro climbed to $1.2346 from $1.2330 late on Friday in New York, after having spent much of the day down against the greenback.
“All it took to reverse this morning’s positive start to the trading session was for the Bundesbank to puncture this weekend’s recycled story about the ECB capping peripheral bond yields,” said CMC Markets UK Senior Analyst Michael Hewson.
German newsweekly Der Spiegel reported that the ECB was considering buying bonds issued by heavily indebted eurozone countries in a move that would ensure borrowing costs did not rise beyond a pre-determined level.
An ECB spokesman dismissed the report as “absolutely misleading”, however, while another at the German finance ministry said such an action would be “be very problematic”.
The Bundesbank said such bond purchases “should be viewed critically and entail, not least, substantial stability policy risks”.
Borrowing costs for Spain and Italy have shot up towards levels that forced Greece, Portugal and Ireland to seek a bailout, though the rate on Spanish 10-year bonds fell in trading on Monday.
The interest rate, or yield on its 10-year bonds stood at 6.28 per cent on the secondary market, down from 6.443 per cent at the close on Friday.
Analysts at Credit Mutuel-CIC said a rise in the stock market “depends on the ability of European leaders to allow the ECB to act”.
On Wall Street, stocks were also down in midday trade.
The Dow Jones Industrial Average slid 0.12 per cent to 13,259.29 points, while the S&P 500-stock index gave up 0.17 per cent to 1,415.70 points, and the tech-rich Nasdaq was down 0.18 per cent to 3,070.94 points.
Back in Europe, “Greece is also back on the agenda today,” said Spreadex trader Shavaz Dhalla.
“Headline reports over the weekend have indicated that German policy makers have insisted there is no room for negotiation over Greece’s current austerity measures.
“Thus, it seems today investors will ponder the possibility of Greece leaving the euro, again, because of excessive austerity measures imposed by eurozone officials as well as the potential that private funding to eurozone nations could dry up,” he added.
A Greek exit from the eurozone would be “manageable” but also expensive and result in higher unemployment, a top member of the ECB governing council was quoted as saying yesterday.
Asian stocks markets edged lower in subdued holiday trade yesterday with Tokyo stocks buoyed by a weaker yen amid dimming chances of fresh stimulus measures by the US Federal Reserve, traders said.