Investors beg leaders to act as markets fall again

 

Stock markets around the world endured yet 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 Index falling by 1.5 per cent in early trading.

Safe haven assets continued to attract investors, with gold rising as high as $1,878 an ounce, a new record. US Treasury bonds and gilts issued in the UK 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, head of equities at stockbroker Hargreaves Lansdown. "There seems to have been little coordinated action in an effort either to spur growth or to put in place a road map for dealing with the increasingly difficult debt situation of many developed economies, most notably the US and Europe."

There was certainly little sign of members of the eurozone being 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 thesecond bail-out plan supposedly agreed for Greece at the end of July.

Many of the smaller members of the eurozone are now calling for Greece to offer more collateral in return for the bail-out, but there appears to be no agreement on how that might be arranged. 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, the chief investment strategist at hedge fund Cairn, warned that the action now required to stabilise the eurozone – in particular, an expansion of the European Financial Stability Fund, the emergency reserve – was likely to result in France losing its prized AAA credit rating. He warned: "France is likely to be downgraded either on its own metrics but more likely as a result of potentially higher EFSF costs."

That warning was echoed by Francois Fillon, the French Prime Minister, who said the launch of eurobonds could also prove to be a trigger for a downgrade. The loss of the AAA rating would be painful for France's banks and add to the pressure on banks across Europe, which continued to lose value yesterday.

In the UK, shares in Royal Bank of Scotland lost 5.4 per cent while Lloyds Bank was down 4.8 per cent. In Switzerland, the country's two biggest banks, UBS and Credit Suisse, were forced to deny market rumours that they had borrowed money from a liquidity facility offered by the US Federal Reserve. Italy's largest banks, UniCredit and Intesa Sanpaolo, also lost more than 5 per cent each, while Societe Generale of France dropped 3.4 per cent.

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