World markets panic as Spain debt fears spread

Markets around the world tumbled yesterday and the FTSE 100 hit an eight-month low over fears the debt contagion was set to engulf Spain.

Shares nosedived as talk emerged that Spain would have to step in to salvage more banks after it bailed out the small savings bank CajaSur on Saturday. Tensions between North and South Korea also knocked the markets.

Peter Dixon, an economist at Commerzbank, said: "There is panic out there. The bad news has been picked up and magnified."

He continued: "The concern is over the stability of the Spanish banking sector, as well as the wider lack of financial leadership in the eurozone countries. The situation in Korea hasn't helped."

The Bank of Spain took control of the savings bank CajaSur at the weekend after its merger with a rival failed.

The Credit Suisse analyst Santiago Lopez said: "The intervention is quite negative news for the financial system, for the sovereign risk profile and for the economy in general." Spain's Ibex 35 fell 3.1 per cent yesterday.

Standard & Poor's downgraded Spain's sovereign debt rating last month shortly after it had done the same to Portugal and Greece.

Market concern rose further on Monday when the International Monetary Fund warned that Spain faced "severe challenges". This included a "dysfunctional" labour market, large fiscal deficit, weak competition, falling property prices and "a banking sector with pockets of weakness".

Markets fell across the world from South Africa and Moscow to China and India. The Shanghai market fell almost 2 per cent as the government looked set to step in and curb property prices.

The UK's blue-chip stocks suffered, with the FTSE 100 falling through the 5,000 point mark for the first time since October. It was 1.17 per cent lower at 4,988.7 points, on track for its fourth worst monthly performance ever. The banking stocks suffered particularly badly, with Lloyds Banking Group the worst, down almost 9 per cent at 50.52p.

The jitters over contagion, as well as the austerity measures introduced in the UK this week, hit sterling, which fell more than 1 per cent against the dollar. The euro fell to a near four-year low against the dollar and an eight-year low against the yen.

Germany's finance ministry, meanwhile, moved to head off further market turmoil by drawing up plans to extend its ban on naked short selling. A document leaked from the finance ministry outlined a plan to extend the ban, which currently covers its 10 most important financial companies and some credit default swaps, to all German companies listed on its domestic exchanges.

Germany banned naked short selling – which involves selling securities that the trader does not own, and has not borrowed – in a surprise move last week. The announcement, and Chancellor Angela Merkel's comments saying the euro was in danger, sent the markets lower.

The New York Stock Exchange also moved to avoid market turmoil, implementing Rule 48 for the third time this month. As the exchange's futures suggested a huge sell-off in the market, NYSE officials called in the rule to suspend the need for market-makers to show pre-opening indications when the market is particularly volatile. The Dow Jones still fell 1.79 per cent in the morning, but recovered to end only 22.82 points down at 10043.75.

PROMOTED VIDEO
News
ebooksNow available in paperback
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

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible