European stock markets closed lower yesterday, hit by the latest Chinese moves to rein in its booming economy and concerns over currency tensions going into a crunch Group of 20 summit.
Dealers said better-than-expected US jobless claims data gave only limited support as investors waited to see if the G20 Seoul meeting would ease growing currency tensions.
The G20 summit looks set to be dominated by charge and counter-charge over currency manipulation, with efforts to draft a common position running into the sands yesterday despite long hours of talks.
The dollar meanwhile was under pressure amid mounting criticism that recent US central bank measures to boost the economy, effectively by printing new money, are inflationary and ultimately dangerous for global trade.
A fresh bout of nerves over weaker eurozone countries, especially Ireland and Portugal whose governments are struggling to put very strained public finances in order, undercut the euro, dealers said.
In London, the benchmark FTSE 100 index of leading shares closed down 0.99 per cent at 5,816.94 points. In Paris, the CAC 40 lost 1.45 per cent to 3,888.45 points and in Frankfurt the DAX shed 1.0 per cent to 6,719.84 points.
The European single currency, dogged by fears that eurozone sovereign debt is returning to the top of the agenda, was lower at $1.3724, down from $1.3771 in New York late on Tuesday.
The dollar was higher at 82.58 yen after 81.72 yen on Tuesday. Gold meanwhile fell to $1,390.50 an ounce from $1,421 on Tuesday when it hit a record $1,424.60.
Gold has been enjoying a record-breaking run as investors seek the metal’s traditional safe-haven and inflation proof attributes.
Dealers said news that China had hiked bank reserve requirements for a fourth time this year to cool its runaway economy, where inflation has also picked up sharply, hit Asian markets and then had a knock-on effect in Europe.
Any slowing in Chinese growth, especially at a time when the US economy is struggling, can only be bad news for stocks, which have run ahead strongly in recent months.
Arnaud de Champvallier at Turgot Asset Management in Paris said the markets “are nervous because they have made considerable gains in a short period of time and now there are fresh concerns all over the place.”
Amongst these, Mr Champvallier cited problems in the eurozone, especially in Ireland. City Index analyst Joshua Raymond said European stocks started off weak and then continued that way, with investors locking in profits.
Dealers said news of a sharp increase in China’s trade surplus will only add to tensions over trade and currencies going into the G20 summit.
“China’s trade surplus will continue to keep the focus on the controversial subject of trade imbalances and reform of the international monetary system,” VTB Capital economist Neil MacKinnon said.
Critics claim the yuan is undervalued, giving Chinese exporters an unfair trade advantage by making their goods cheap. At the same time, however, many emerging nations argue that Washington is also pushing down the dollar to help boost exports.