European stock markets closed lower yesterday as much weaker-than-expected US jobs data dashed hopes that the struggling US economy was about to pick up again and eurozone debt fears spread to Italy.
Dealers said sentiment had steadied after a bad start to the week and got a boost on Thursday on strong US private sector employment figures, setting investors up for what they expected to be a strong day.
Instead, the report showed the US economy generated only 18,000 jobs in June, way short of already modest forecasts for 80,000, catching the markets out of position and sparking a sharp sell-off in afternoon trade.
US President Barack Obama acknowledged that the economy was simply not producing enough jobs to gain any traction while the figures gave his Republican foes a field day.
The euro meanwhile also suffered as hopes of progress on a second debt bailout accord for Greece evaporated and fears grew that Italy could be next in the firing line as stocks there tumbled nearly 3.5 per cent in Milan.
Spain, seen alongside Italy as the next mostly likely victim of the eurozone debt crisis, was down more than 2.5 per cent as both countries fail to convince sceptical markets that they can stabilise their public finances.
In London, the benchmark FTSE 100 index of top shares closed down 1.06 per cent to 5,990.58 points. In Frankfurt, the DAX shed 0.92 per cent at 7,402.73 points and in Paris the CAC 40 lost 1.67 per cent to 3,913.55 points.
In late London trade, the euro was at $1.4255, down from $1.4356 late Thursday in New York. The dollar fell to 80.66 yen from 81.20 yen.
The euro suffered both from concerns over the Greek debt problem and as the US data made investors more reluctant to take on riskier assets, such as the single currency. Thursday’s European Central Bank rate hike to 1.50 per cent from 1.25 per cent had been expected and its impact was limited.
Analysts found little comfort anyway in the US data which they said raised serious questions about the outlook for both the US and global economies.
In New York, the blue-chip Dow Jones Industrial Average was down 0.86 per cent at around 1600 GMT, with the high-tech Nasdaq Composite off 1.07 per cent.
In Asian trade earlier, Tokyo was up 0.66 per cent, Hong Kong rose 0.80 per cent and Sydney gained 1.07 per cent, helped by a sharp advance Thursday on Wall Street in anticipation of a strong jobs report yesterday.
Dealers said the jobs report was a letdown for investors who had hoped the US economy was getting back on track after the disruption caused by the Japan earthquake in March and a surge in commodities prices earlier this year.
“Today is going to be a rough day for markets,” said Jason Schenker, head of Prestige Economics.
“Light summer trading volumes, coupled with a very disappointing report and misplaced expectations are likely to yield a lot of red on the screen,” he said.