European stock markets and the euro slid yesterday with traders waiting to see if EU leaders will deliver concrete steps to tackle the eurozone’s spreading debt crisis.
London’s benchmark FTSE 100 index shed 0.56 per cent to 5,493.06 points, with bank stocks hurt by an interest rate fixing scandal.
In Frankfurt, the DAX 30 tumbled 1.27 per cent to 6,149.91 points and in Paris the CAC 40 slid 0.37 per cent to 3,051.68 points.
Milan rose by 0.67 per cent, however, and Madrid gained 0.82 per cent as lawmakers passed a 2012 austerity budget.
In foreign exchange deals, the euro retreated to $1.2435 from late Wednesday’s $1.2467 in New York.
The dollar slid against the yen, buying 79.33 of the Japanese unit compared to 79.71 at Wednesday’s close in New York.
US stocks also headed down, shrugging off a Supreme Court ruling upholding President Barack Obama’s health care reform, focusing instead on banking problems. “European politicians have done a fantastic job of lowering expectations for the EU summit that begins today, which means that even the smallest ‘breakthrough’ may cause a short-term relief rally” across financial markets, said Kathleen Brooks, research director at Forex.com trading group.
EU leaders began debate on a so-called “a big leap forward” for increased integration and to save the euro at a two-day summit in Brussels, but splits might scupper efforts to ring-fence the single currency.
The 27 EU heads of state and government began their talks with the world anxiously awaiting a grand plan to save the single currency from a collapse with unfathomable global repercussions.
Cyprus and Spain have joined the earlier victims of contagion – Greece, Portugal and Ireland – in requesting aid. With Italy, the eurozone’s third economy, also threatened, the EU is under pressure from world leaders to deliver a convincing plan to prevent a collapse of the single currency.
“Financial markets are hoping that EU leaders will be able to come to some form of agreement about steps towards some form of banking union and a deposit guarantee scheme, as well as agree to measures to help lower borrowing costs in Spain and Italy,” said Michael Hewson, senior analyst at CMC Markets trading group.
“Expectations are low so the potential for a positive surprise is there; unfortunately it seems more likely that nothing tangible is likely to be agreed given that EU officials are already playing down expectations.”
Banking shares were hit after Barclays became to the first to be fined in a probe into rigging of key interest rates at which many businesses and consumers worldwide borrow. Shares in Barclays plunged by as much as 17 per cent, wiping billions of pounds from its value, as Prime Minister David Cameron and Finance Minister George Osborne said the bank had “serious questions” to answer.
British and US authorities are probing several other banks which may have also acted improperly in the setting of the inter-bank Libor and Euribor rates.