The euro slumped to 16-month dollar lows yesterday and European stocks closed lower, led down by Spain and Italy as a sharp upsurge in eurozone debt tensions more than offset strong US jobs data.
Dealers said sentiment was hit badly after Spain’s new Economy Minister warned that the banks could need €50 billion, much more than previously expected, to cover bad loan losses.
News of a surprise visit by Italian Prime Minister Mario Monti to Brussels stoked fresh uncertainty, adding to the turmoil on the Milan bourse, although diplomatic sources in Belgium said his trip was completely private.
Mr Monti, who visits Paris today for talks with French President Nicolas Sarkozy, had no scheduled meetings with senior EU officials, the European Commission said.
With Italy already under pressure as the economy buckles and debt mounts, Milan was additionally hit after floundering UniCredit spooked investors by pricing a planned share sale at 43 per cent below current market levels.
That lead, plus the comments on Spanish bank bad debt problems, hit lenders across the markets, with UniCredit plunging another 17 per cent as investors looked past solid US new jobs and unemployment claims figures.
Milan tumbled 3.65 per cent and Madrid shed 2.94 per cent but other markets held up better. London’s FTSE index of leading companies fell 0.78 per cent to 5,624.26 points, in Paris the CAC-40 lost 1.53 per cent to 3,144.91 points and in Frankfurt the DAX 30 slipped 0.25 per cent to 6,095.99 points
In New York, the blue-chip Dow Jones Industrial Average was down 0.38 per cent at around 1700 GMT while the tech-dominated Nasdaq Composite was up 0.18 per cent as the market came off its early lows on the back of lost 0.41 per cent as the strong jobs data began to have an impact.
New claims for US unemployment benefits fell 15,000 to 372,000 in the week to December 31 while payrolls firm ADP said the US private sector ramped up hiring in December to the highest level in a year, with 325,000 jobs created in the month, much more than the 180,000 forecast by analysts.
The data added to the pressure on the euro which fell to $1.2798, levels last seen September 13, 2010 and down from $1.2941 in New York trade late Wednesday.
“The pressure on the euro is unrelenting, following the better-than-expected US jobs data we have just (gone) . . . below $1.28 for the first time since September 2010,” said Spread Co analyst Ian O’Sullivan.
“The debt crisis fears are just not going away and if anything are intensifying,” he warned, with $1.27 and $1.25 now realistic targets.
“Investors are increasingly jittery that the fragile banking sector in Spain could prompt the need for external support, taking its toll on the single currency. Euro/dollar looks set to test $1.25 soon,” said analyst Nick Stamenkovic at RIA Capital Markets.
“Since May last year, the single currency has been on a downward spiral,” said City Index analyst Joshua Raymond.