Greek turbulence hits European stocks, euro

European stock markets fell yesterday awaiting pivotal debt talks on Greece in thin volume due to US trading being suspended as Hurricane Sandy bore down on New York.

London’s FTSE 100 index of top companies slid 0.20 per cent to 5,795.10 points, while in Frankfurt the DAX 30 dropped 0.40 per cent to 7,203.16 points, and in Paris the CAC 40 fell 0.76 per cent to 3,408.89 points with a low volume of one billion euros.

The drop has been put down to higher sales taxes introduced by the government as it strives to cut its spending gap and avoid asking for a bailout.

Spanish Prime Minister Mariano Rajoy later reiterated that the country does not need a rescue. Madrid’s IBEX 35 gave up 0.60 per cent to 7,728.6 points.

In foreign exchange trading, the euro retreated to $1.2897 from $1.2935 late in New York on Friday.

Gold prices dipped to $1,707 an ounce on the London Bullion Market, from $1,716 an ounce on Friday.

Eyes were back on Greece this week, as eurozone ministers and officials were to hold a series of potentially critical meetings to decide whether Athens had done enough to get its next installment of aid and avoid bankruptcy next month.

Ministers were also looking at a Greek request for the terms of its bailout to be extended by two years to 2016, allowing it to spread out the pain of the tough austerity measures it has agreed to in return for help.

Shares in Greek banks plunged as the finance ministry dashed hopes of help from the EU’s new rescue fund.

A Greek banking sub index plummeted 15.97 per cent at the close, dragging down the main ASE market index by 6.28 per cent to 819.61 points.

The drop came after the finance ministry said Greek banks would not be able to swap greatly devalued holdings of national debt for bonds issued by the new European Stability Mechanism.

The ministry broke the news shortly after a meeting between Finance Minister Yannis Stournaras and the Greek banking federation to discuss the bank’s urgent plight.

The banks are also waiting for billions from the EU’s temporary EFSF bailout fund, part of the held up aid instalment of €31.5 billion that Greece needs urgently to avoid bankruptcy next month.

On the corporate front, shares in British publisher Pearson rose 0.33 per cent to 1,225 pence after the group agreed to merge its Penguin books unit with English-language rival Random House, owned by German media giant Bertelsmann.

Penguin and Random House would combine their businesses in a newly-created joint venture named Penguin Random House, said a statement. Bertelsmann would own 53 per cent of the joint venture and Pearson 47 per cent.