European shares closed mixed and the euro tumbled in choppy trade yesterday as fresh jitters over the eurozone debt crisis offset a better-than-expected German investor confidence report.

Dealers said that after an initially positive reaction to Friday’s EU summit call for a new fiscal compact, investors again found the proposals lacking when it comes to cutting the debt and boosting growth.

A solid opening on Wall Street after sharp falls on Monday helped drive gains in the afternoon but the markets then fell back on reports German Chancellor Angela Merkel wanted to limit the size of the permanent eurozone debt rescue fund.

The euro bore the brunt of the damage, hitting levels last seen in January as investors turned tail and pushed many markets into the red.

In London, the FTSE-100 index closed up 1.15 per cent at 5,490.15 points. In Paris, the CAC-40 fell 0.35 per cent to 3,078.72 points and in Frankfurt the DAX 30 slipped 0.19 per cent to 5,774.27 points after being up earlier in the day. Milan finished down 0.31 per cent and Madrid lost 0.74 per cent.The euro hit $1.3057, its lowest level since January 12, and then recovered to $1.3097 to leave it well down from $1.3188 in New York late Monday.

Kathleen Brooks at Forex.com said that the slide may have due to Mrs Merkel’s rejection of calls to raise the upper limit of the European Stability Mechanism rescue fund, which currently stands at €500 billion.

Some countries want to increase its size to so that it would be better placed to handle a potential rescue of Italy and Spain. Michael Hewson at CMC markets said Mrs Merkel’s comments renewed concerns that European leaders failed to fully agree on how to resolve the debt crisis despite agreeing in principle to adopt much stronger budgetary coordination.

“The single currency continues to find any sort of progress difficult to sustain and the comments out of Germany from Mrs Merkel about the ESM suggest that EU policymakers are as far away as ever to a communal and uniform approach to the debt crisis,” Mr Hewson said.

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