European stocks fell yesterday, dragged down by the banking sector on heightened fears about lender exposure to the eurozone debt crisis and the potential impact of more recapitalisation.
Investors shrugged off approval by Slovakia of the revamped eurozone rescue fund and focused more on a European Central Bank warning of downside risks to the world economy.
At close, London’s FTSE-100 was down 0.71 per cent to 5,403.38 points, Frankfurt’s DAX 30 index lost 1.33 per cent to 5,914.84 points and Paris’s CAC 40 ended the day down 1.33 per cent to 3,186.94 points.
Elsewhere in Europe, Milan shares were down 3.7 per cent, Madrid fell 0.92 per cent and Amsterdam dropped 0.92 per cent.
“Even if there was a return to a certain optimism in the past few days, there remain too many uncertainties regarding the debt crisis to get close” to the 3,300 point level in Paris, Arnaud de Champvallier of Turgot Asset Management said.
The euro edged down to $1.3732, compared with $1.3788 late in New York on Wednesday, and the dollar fell against the yen to 76.88 yen from 77.24 yen on Wednesday.
On Wall Street, US stocks were lower with the Dow Jones Industrial Average down 0.85 per cent to 11,420.43 points in midday trade.
The tech-heavy Nasdaq Composite slipped 0.27 per cent to 2,597.78 points, while the S&P 500, a broader measure of the markets, fell 1.04 per cent to 1,194.65 points.
“Although early losses are broad, the stock market’s descent has been primarily driven by weakness in the financial sector,” analysts at Briefing.com said.
European bank shares plunged after the French finance ministry warned that European lenders exposed to Greek debt will probably face greater losses than those already agreed to.
Before a weekend meeting of G20 finance ministers in Paris, France said banks would probably be forced to write off more Greek debt than the 21 per cent proposed in a July eurozone accord on a second bailout for Athens.
In their pre-G20 briefing, French officials said EU states would set up a mechanism to allow banks in difficulty to seek assistance, but that the statutes of the European Financial Stability Facility would not change.
Banks have been asked to increase their core capital reserves so that they will be better able to cope with any losses on their holdings of bonds issued by weak eurozone states. French banks have a large exposure to Greece.
In Paris at close, BNP Paribas tumbled 5.67 per cent, Crédit Agricole plunged 5.68 per cent and Société Générale sank 6.69 per cent.