Investors beg leaders to act as shares slump again

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The Independent Online

Stock markets around the world endured another day of turmoil yesterday, as fears about the global economy and the deteriorating sovereign debt crisis in the eurozone continued to unnerve investors.

In London, trading was hugely volatile, with the FTSE 100 falling by as much as 2.5 per cent at times during the day before recovering to close 1 per cent down – the equivalent of a £13.4bn loss for investors in Britain's largest companies. Shares fell by 2.5 per cent in Italy, by 2 per cent in both Germany and Spain, and by 1.8 per cent in France. The US stock market also opened sharply down, with the Dow Jones average falling by as much as 1.5 per cent in early trading.

Safe havens continued to attractinvestors' money, with the gold price rising as high as $1,878 an ounce, a record. US Treasury bonds and UK gilts traded at historic lows.

Trading was less chaotic than on Thursday, when markets saw larger collapses, but investors continued to complain about a lack of political leadership. "The rhetoric of policymakers has yet to translate into any definitive plans," said Richard Hunter, the head of equities at Hargreaves Lansdown.

There was certainly little sign that members of the eurozone were prepared to put their political differences aside yesterday, with continued squabbling over Germany's refusal to countenance the launch of eurobonds, to pool the bloc's debts, and further disagreements over the detail of the second bail-out plan that was supposedly agreed for Greece at the end of July.

Marco Valli, an economist at Italy's UniCredit Bank, said the rows were undermining political leaders' credibility with the markets.

"If you want to sell your pact to save Greece then you should not be fighting about this," he said.

However, Graham Neilson, of the hedge fund Cairn, warned that the action now needed to stabilise the eurozone – in particular, an expansion of the European Financial Stability Fund, the emergency reserve – was likely to see France lose its AAA credit rating.

Banking shares suffered particularly badly. Royal Bank of Scotland lost 5.4 per cent while Lloyds Bank was down 4.8 per cent. Italy's UniCredit and Intesa Sanpaolo also lost more than 5 per cent each.