European stock markets took a hit yesterday as investors ditched risky assets amid growing confusion and concern that a Greek debt bailout plan was falling apart. But buoyant data on new US jobless claims and housing starts improved sentiment and helped Europe’s main markets end narrowly mixed.
London’s benchmark FTSE 100 index slipped 0.12 per cent to 5,885.38 points and Frankfurt’s DAX 30 dipped 0.09 per cent to 6,751.96 points. Paris’ CAC 40 index managed to end the day with a gain of 0.09 per cent at 3,393.25 points.
Milan dropped 0.87 per cent, while Madrid plunged 2.1 per cent on news that the country’s struggling economy had logged a 0.3 per cent contraction in the fourth quarter of 2011, raising concerns of a recession.
Wall Street advanced in midday trading, with the Dow Jones Industrial Average up 0.65 per cent to 12,863.63 points. The broad-based S&P 500 gained 0.75 per cent to 1,353.33 points, while the Nasdaq Composite rose 0.54 per cent to 2,931.43 points.
Positive signs for the US economy poured in, with the weekly report of new claims for unemployment benefits falling to their lowest level since March 2008 and data on January housing construction confirming a pickup in that depressed sector.
The euro fell below $1.30 during the day, but clawed back to trade at $1.3096 at around 1700 GMT, up from $1.3065 on Wednesday.
“Markets have traded with a much softer tone today as concerns about deteriorating relations between Greek and EU politicians fuel suspicion that a Greek default is imminent,” said CMC Markets senior analyst Michael Hewson.
“Despite closing well off their intraday lows, concerns still remain that the continuing delays in wrapping up this running sore, with talk of looking at measures to delay a final decision by various delaying tactics, has seen markets display a safety-first approach again,” he added.
Dutch finance minister Jan Kees de Jager yesterday told a parliamentary committee in The Hague the Greek crisis was “back to square one” as the country’s economy was much worse than had been expected at the beginning of the crisis.
For several weeks Eurozone leaders have been negotiating Greece’s desperately-needed rescue package of €130 billion in fresh loans and a writedown on privately-held government bonds worth €100 billion to avoid defaulting on debt owed on March 20.
Eurozone government sources said yesterday that the rescue would still be insufficient to meet a debt reduction target to make the country’s steep repayments sustainable in 2020.
Further IMF participation in Greek bailouts has been contingent on the rescue programme returning the country to a sustainable debt position.
Eurozone finance ministers have pushed a decision on the bailout back to Monday, but there has been growing talk of delaying much of the bailout until after Greece’s early elections in April or having Greece postpone those polls.