European stocks fell yesterday after a German warning against undue enthusiasm that an EU summit this weekend will produce a quick solution to the eurozone debt crisis snuffed out an early rally.
Europe’s main equity markets had opened strongly in the wake of strong finishes across the Asia-Pacific region, but by mid-afternoon had dropped into negative territory.
The euro, which had rallied in the morning to above $1.39 for the first time in a month, also fell back after sobering comments from Germany.
At close of trade, Frankfurt’s DAX 30 was down 1.81 per cent to 5,859.43 points, London’s benchmark FTSE 100 index had lost 0.54 per cent to 5,436.70 points, and in Paris the CAC 40 dropped 1.61 per cent to 3,166.06 points.
Milan closed down 2.30 per cent and Madrid dropped 1.24 per cent.
The euro reached an intra-day high of $1.3914, before tumbling to $1.3763. That was down from $1.3881 in New York on Friday. The dollar fell to 76.77 yen from 77.21 yen on Friday.
Gold stood at $1,682 an ounce, up from $1,678 on Friday.
The German comments also hit sentiment on on Wall Street. In midday trading the Dow Jones Industrial Average was down 1.43 per cent to 11,478.13 points.
The broader S&P 500 fell 1.39 per cent to 1,207.57 points and the tech-heavy Nasdaq dropped 1.54 per cent to 2,626.70 points.
“Pressure this morning comes as many market participants continue to take their cues from Europe’s major bourses, which have faltered in recent action,” said analysts at Briefing.com.
Germany sought to dampen expectations for Sunday’s European Union summit in Brussels, with government spokesman Stefan Seibert warning that “dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled”.
Finance Minister Wolfgang Schaeuble said that decisions would be part of “important measures to be taken over the long term, and this long term is likely to last into next year”. The tone was a marked change from the weekend when, speaking after a meeting of G20 finance ministers and central bankers in Paris, French Finance Minister Francois Baroin said the eurozone answers at the summit would be “decisive”.
But EU Commission President Josè Manuel Barroso said decisions this weekend must be decisive and unanimous.
The G20 finance chiefs had welcomed Europe’s voiced determination though making it clear still more needed to be done.
US Treasury Secretary Tim Geithner warned that the plan must include measures to ensure that European governments could borrow at sustainable interest rates, a broad recapitalisation of banks, and further support for debt-laden Greece.
Reducing Greece’s debt to a more sustainable level is emerging as a key element to resolve the eurozone crisis.
After boosting their European Financial Stability Facility (EFSF) bailout fund to €440 billion ($600 billion), eurozone leaders are studying ways to leverage its assets up to €2.5 trillion.