Europe fears keep markets on edge

 

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The Independent Online

Concerns that Europe's debt crisis could drag down parts of the continent's banking system hit most global markets today though social network Facebook's imminent flotation buoyed sentiment on Wall Street.

Spain's main stock index recovered 1.34% from heavy losses yesterday, thanks mainly to a bounce back in the shares of state-controlled lender Bankia, which had plummeted on reports of an increase in deposit withdrawals. They rose 22% today, making up for a similar drop the previous day.

Banco Santander and Banco Bilbao Vizcaya Argentaria were up more than three points in mid-morning trading.

The level of bad loans on the books of Spain's banks has risen to an 18-year high, the country's central banker reported, increasing concern for the stability of Spain's financial sector and the country's place in the fragile eurozone economy.

The Bank of Spain reported that lenders' and savings banks' bad loan ratio had risen in March to 8.36% from 8.15% the previous month.

News of the increase followed a downgrading by credit ratings agency Moody's of the country's banking industry.

Spain is in the eye of the storm of the eurozone debt crisis amid worries that its banks are overexposed to an imploded property bubble and the government, fighting recession and a nearly 25 % jobless rate, could not afford to bail them out if it needed to.

By midday in Europe, stock exchanges managed to slightly reverse their earlier losing streaks with Britain's FTSE 100 fell 0.5% to 5,311, Germany's DAX was up 0.4% to 6,333 and France's CAC-40 rose 0.6% to 3,030.

Worries over Spain were reignited by the prospect that Greece might leave the euro currency. Anti-bailout political parties made huge gains in general elections on May 6, though that ballot proved inconclusive. Another election will be held on June 17, and the radical left party Syriza is forecast to make gains, possibly becoming the biggest party.

Syriza rejects the international bailout - and the related austerity measures - that the former government negotiated.

But without that rescue package, Greece will likely default and have to leave the eurozone. That would result in financial disaster for Greece and send shockwaves through European markets, destabilising other weak countries.

Fitch ratings agency downgraded Greece to the lowest possible grade for a country not in default yesterday, noting that if the next elections do not produce a government that supports the bailout, Greece's exit from the eurozone "would be probable."

Wall Street looked set for a higher opening, when shares of social media giant Facebook will start trading. The company priced its IPO at 38 dollars per share, at the top of expectations, and buyer demand is expected to be very strong.

Dow Jones industrial futures were up 0.4% to 12,466 and S&P 500 futures added 0.4% to 1,306.50.

In Asia, Japan's Nikkei 225 tumbled 3% to close at 8,611.31, its lowest finish in four months as signs of weakness in the US, a critical export market for Japanese companies, battered some of the country's behemoth manufacturers.

The Federal Reserve Bank of Philadelphia said its index of factory activity fell to minus 5.8 from 8.5 in April. Any reading below zero indicates contraction. Measures of new orders and employment also fell in May, the bank said. That suggests manufacturers in the region are cutting jobs.

Hong Kong's Hang Seng dropped 1.3% to 18,951.85 and Australia's S&P/ASX 200 slid 2.7% to 4,046.50. South Korea's Kospi tumbled 3.4 % to 1,782.46. Benchmarks in Singapore, Taiwan and New Zealand also fell.

Mainland Chinese shares lost ground, with the benchmark Shanghai Composite Index losing 1.4% to 2,344.52. The Shenzhen Composite Index fell 1.5% to 940.91.

Benchmark oil for June delivery was up five cents to 92.61 dollars a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 25 cents to settle at 92.56 dollars in New York yesterday.

In currencies, the euro fell to 1.2707 dollars from 1.2714 dollars late yesterday in New York. The dollar rose slightly to 79.38 yen from 79.28 yen.

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