European stocks suffered sharp losses yesterday on renewed fears for the solvency of Greece and a warning on global recovery prospects from the US Federal Reserve.
The Fed comments earlier took a toll on Asian markets, which closed mostly lower and set the stage for declines in Europe and later on Wall Street.
In a statement on Wednesday after a two-day policy meeting the Federal Reserve suggested that the European debt crisis was constraining recovery in the United States.
Fed policymakers said "financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad" - an apparent reference to the eurozone sovereign crisis, which has been especially apparent in debt-strapped Greece.
Credit default swaps on Greek bonds, which act as insurance against the risk of a national default, shot up to a record high yesterday, signalling investor unease over the state of public finances in Greece. But analyst Yves Marcais of Global Equities insisted that "fears (for Greek solvency) are not justified... in light of the European aid" plan, announced in early May.
The European Union and the International Monetary Fund have agreed to provide Greece with €110 billion in loans at below market rates, which means that the Greek government does not need to borrow money on the bond market.
Nonetheless, lingering market nervousness combined with the downbeat comments from the Fed depressed sentiment in Europe yesterday.
In London the FTSE 100 index gave up 1.51 per cent to close at 5,100.23 points while in Paris the CAC 40 fell 2.37 per cent to 3,555.36. The Frankfurt DAX tumbled 1.44 per cent to 6,115.48.
Elsewhere there were declines of 2.05 per cent in Milan, 1.53 per cent in Brussels, 1.76 per cent in Amsterdam and 0.96 per cent on the Swiss Market Index.
The Madrid exchange plunged 3.03 per cent after the Spanish government announced a freeze in electricity prices, suspending a four per cent hike scheduled for July, in order to help households and businesses cope with an economic crisis.
US stocks also fell yesterday, with the Dow Jones Industrial Average down 0.95 per cent at 10,200.34 at mid-day and the Nasdaq off 1.14 per cent at 2,228.52.
"The equity markets are under solid pressure in late-morning action," Charles Schwab & Company analysts said in a note to clients.
"Resurfacing euro-area debt fears are teaming up with carry-over uneasiness from yesterday's disappointing record plunge in US new-home sales, and the Federal Reserve's revision to its economic assessment, to sour global sentiment."
In other news, new orders for US manufactured durable goods - items such as planes, cars, refrigerators and computers - fell 1.1 per cent in May, the Commerce Department said.