European stock markets and the euro fell sharply yesterday as investors retreated from bank shares on concerns the EU debt crisis accord may come up well short of initial expectations.
The crisis took its first casualty in the United States as struggling brokerage firm MF Global filed for bankruptcy after taking losing bets on distressed European sovereign debt.
In London, the FTSE-100 index of top companies lost 2.77 per cent to 5,544.22 points, the Paris CAC-40 tumbled 3.16 per cent to 3,242.84 points and in Frankfurt the DAX 30 shed 3.23 per cent to 6,141.34 points.
Elsewhere in Europe, Milan slid 3.82 per cent, Madrid 2.92 lost per cent, Lisbon 1.27 per cent, Amsterdam 1.76 per cent and Zurich 2.07 per cent.
Dealers said there was plenty of room to take profits on last week’s gains made in a huge relief rally over Thursday’s debt accord as a lack of detail in the plan offered a good incentive for investors to pull back.
After the initial euphoria, the markets now want to see some real follow up on the deal and a jump in Italian borrowing rates reflected the underlying nervousness.
“Constant pressure on long-term Italian bond yields despite a rise in share prices (last week) highlights that the sovereign debt crisis is far from over and that markets will still test politicians,” analysts at Aurel BGC brokerage said.
The banks suffered on concerns over their holdings of weak eurozone governments’ debt, with the offer of capital last week to help bolster their balance sheets not finding much favour from investors wary of state interference.
In midday trading in New York, the blue-chip Dow Jones Industrial Average fell 1.50 per cent, the S&P was off 1.52 per cent and the tech-heavy Nasdaq Composite was down 1.30 per cent.
US stocks started “on a sour note, thanks to fading optimism over last week’s highly anticipated eurozone debt deal,” said Andrea Kramer at Schaeffer’s Investment Research.
Sentiment also soured when MF Global, founded by former Goldman Sachs boss and politician Jon Corzine, filed for bankruptcy protection. making it the first major US casualty from the European debt crisis.
While not a world player, MF Global is well-known on Wall Street and attention immediately turned to JPMorgan Chase and subsidiaries of Deutsche Bank after MF’s bankruptcy filing showed those firms to be the firm’s two biggest creditors.
Kramer said that it appeared dealers were “taking a cautious approach to a week chock-full of notable items on the agenda, including a summit of Group of 20 leaders, a press conference with Federal Reserve chairman Ben Bernanke and an onslaught of unemployment data.”
The Fed is slated to announce its latest monetary policy decision Wednesday, while on Friday the US government reports October job numbers.
In foreign exchange deals, the euro fell to $1.3927 from $1.4156 late on Friday.
The dollar climbed to ¥77.99 from ¥75.81 Friday as Japan stepped in to weaken its currency after it hit a fresh post-war high against the US unit of ¥75.32.
Dealers said the hope is that this week EU leaders will provide the missing detail to backstop the debt accord.
A source told AFP yesterday that European nations would fill in the gaps by presenting the “package for stabilising the euro” at the G20 summit on Thursday and Friday.