European stocks closed lower yesterday as weaker-than-expected US growth data undercut modest opening gains made in a technical bounce after sustained losses due to the eurozone debt crisis.
Dealers said the early rebound was to be expected after recent heavy losses and the markets were quick to go into reverse when revised data showed the US economy grew two per cent in the third quarter, not 2.5 per cent as first given.
They said that while on closer reading the data was more positive, the headline numbers were a shock to already nervous investors trying to get ahead of the latest twists in the eurozone debt crisis.
A very sharp spike in Spanish short term borrowing costs at the first cash raising exercise by the new right-wing government elected at the weekend were an unwelcome reminder of how the crisis will not let up.
News overnight that a US special committee failed to come up with bipartisan measures to tackle the US debt mountain added to the negative tone, promising to make the issue a key divisive feature of the 2012 presidential elections.
European leaders were meanwhile meeting in Brussels to try and resolve the relentless debt crisis now threatening big nations such as France.
In London, the FTSE-100 index of top companies closed down 0.30 per cent at 5,206.82 points. In Paris, the CAC-40 dropped 0.84 percent at 2,870.68 points and in Frankfurt the DAX 30 shed 1.22 per cent to 5,537.39 points.
Milan was down 1.54 per cent while Madrid shed 1.45 per cent.
German stocks were hit by massive losses for Commerzbank of more than 15 per cent, taking the stock to record lows, as investors fretted that Germany’s second biggest bank needs more capital.
Merck Fink analyst Konrad Becker said recent regulatory changes made it likely that Commerzbank would need more fresh funding than anticipated to ensure it meets new capital adequacy requirements. Another analyst said there was talk in the market that Commerzbank could need up to five billion euros while the German banking sector might require €10 billion as a whole, with the state possibly having to come to the rescue again.
Commerzbank, Germany’s second bank was bailed out in 2009 in the global financial crisis.
The European single currency was little changed at $1.3492 after $1.3494 in New York late Monday but came off highs well above $1.35 as the day progressed.
Daiwa economist Chris Scicluna said he had expected the equities bounce to be short-lived as nothing had changed to justify any optimism over change.
“We still have a policy vacuum in the euro area. Meanwhile, the euro area economy is rapidly going into reverse and the incentives for Italian, Spanish and even French bondholders to maintain their exposures will diminish further,” Mr Scicluna said.