Investors unnerved by eurozone uncertainty

 

Uncertainty in the eurozone continued to unnerve investors today as London's leading shares index endured a day of volatile trading.

The FTSE 100 Index closed 0.2% lower after the European Commission slashed its growth forecasts for the eurozone, highlighting the underlying problems faced on the continent.

The gloomy figures overshadowed a slight improvement in Italy's borrowing costs, which had soared into unsustainable territory in recent days amid fears over the country's huge debts and weak growth.

Italy's 10-year bond yield was back below the critical 7% mark following a better-than-expected debt auction and signs that prime minister Silvio Berlusconi could be out of office by the weekend.

Mr Berlusconi was largely seen as an obstacle to pulling Italy, which is the eurozone's third-largest economy and has debts worth 120% of national income, from a financial mire.

But the mood was dominated by troubling forecasts from the EC, as it warned the 17-country eurozone could slip into "a deep and prolonged recession" as early as next year. The EC cut its eurozone growth estimate to 0.5% in 2012, from 1.8%.

Azad Zangana, European economist at asset management giant Schroders, said: "We believe that the outlook for the eurozone economy is now significantly more negative and that politicians have missed their opportunity to prevent a European credit crunch."

Markets have suffered losses in recent days as the yield on Italian 10-year bonds climbed to the levels that pushed Ireland and Portugal into multibillion-pound bailouts from the EU and IMF.

But borrowing costs settled after the Italian government easily sold five billion euros (£4.2 billion) worth of 12-month bonds at an interest rate of 6.1%, with high demand reported.

Raj Badiani, analyst at IHS Global Insight, said: "Italy can still stumble out of the current crisis.

"We continue to argue that Italy is better placed than the bailed-out peripherals, helped by its sounder budgetary position alongside markedly healthier private-sector fundamentals with regards to debt and wealth levels."

German and French officials have reportedly discussed plans to break up the eurozone, with weaker countries leaving the 17-nation currency bloc, while the remaining nations push towards greater integration.

The discussions come amid fears that a debt default by Greece or even Italy could sink the eurozone and cause chaos on financial markets.

The wavering sentiment hit the banking sector, which is exposed to £10.9 billion worth of Italian debt, with Barclays down 1% and Lloyds Banking Group off 0.4%.

Prime Minister David Cameron said Italy posed "a clear and present danger to the eurozone", while German Chancellor Angela Merkel pressed it to clear up quickly who will run the country.

Elsewhere, former European Central Bank vice president Lucas Papademos was named as Greece's interim prime minister of a new unity government after four days of power-sharing talks.

The announcement will offer some reassurance towards the debt-laden country, which has experienced a tense political upheaval in recent weeks.

There was some cheer on the other side of the Atlantic, where the number of people who applied for unemployment benefits in the United States last week fell to the lowest level since April, which suggests employers could be stepping up hiring.

Elsewhere, figures showed the US trade deficit fell in September to the lowest point this year as sales of American-made cars, aeroplanes and heavy machinery pushed exports to an all-time high.

PA

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions