European stock markets closed mostly lower yesterday as investors took a more critical look at the eurozone debt rescue plan which drove massive gains the previous day in a euphoric relief rally.
Dealers said some consolidation was only to be expected given the advances of five per cent and more in some centres on Thursday after EU leaders agreed to cut Greek debt, bolster the banks and strengthen a eurozone bailout fund.
They said sentiment overall is positive on the hard-won deal but the market now wants to see specific details of how and when it will be implemented, with all eyes on Italy especially to make good on its promises to do better.
“Eurozone politicians were very successful in putting a positive spin on this week’s summit but there are still significant potential pitfalls in the road ahead,” said Jane Foley, senior currency analyst at Rabobank.
“A handful of French banks, and some German and Italian are still widely considered to be vulnerable. Clearly this position could be worsened if contagion makes a comeback – and this is still a significant risk.”
Rome, significantly, had to pay higher rates above the key red-line level of 6.0 per cent to investors yesterday to raise fresh funds – not a good sign, analysts said.
“At this level, the rates are not sustainable for long,” Giuseppe Maraffino from Barclays Capital warned, stressing how important it is that they come down again in light of Italy’s poor growth rate and vast mountain of debt.
In London, the FTSE-100 index of top companies slipped 0.20 per cent to 5,702.24 points. In Paris, the CAC-40 fell 0.59 per cent to 3,348.63 points but in Frankfurt the DAX 30 edged up 0.13 per cent to 6,364.18 points.
Other European markets were also mostly lower.The euro meanwhile eased to $1.4164 from $1.4187 on Thursday, when the European single currency hit a seven-week high of $1.4247 on the EU debt deal.
The dollar fell to 75.75 yen from 75.94 yen, while gold advanced to $1,730 an ounce from $1,718.
In New York, the market was flat at around 1600 GMT as investors digested Thursday’s gain of 2.9 per cent.
“After skyrocketing to gains of roughly three per cent or better (Thursday) the major market indexes are set to take a rally respite today,” said Andrea Kramer at Schaeffer’s Investment Research.
Patrick O’Hare at Briefing.com said that after Thursday’s rally and the market rebound of the past three weeks, “the weakness could simply be a case of profit taking after such a strong run.”
“Risk assets across Europe rallied strongly (Thursday) in response to the latest eurozone bailout, however.... the markets are more cautious (yesterday) as the unanswered questions of how the plan will actually work start to build up,” said analysts at Dolmen Stockbrokers in Dublin.
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