European stocks closed down but off their early lows yesterday while the euro dropped to levels last seen in January after Greece said it would miss deficit targets this year and next, putting even more pressure on the eurozone.
European markets chalked up heavy falls, in line with Asian trade, on the first trading day of the fourth quarter after Greece said the 2011 budget deficit would come in at 8.5 per cent of GDP, well short of its 7.4 per cent target.
“It’s a hard return to reality after the lull markets enjoyed last week in the wake of the German vote on the European rescue fund,” Renaud Murail of Barclays Bourse in Paris said.
Wall Street, having fallen sharply on Friday, posted modest losses yesterday as traders welcomed data showing that the US manufacturing sector is in better shape than previously thought.
“Things are looking relatively better on Wall Street this morning but that isn’t to say they are looking good,” Patrick O’Hare of Briefing.com said.
At close, London’s FTSE-100 index of leading shares was down 1.03 per cent to 5,075.50 points. In Frankfurt, the DAX fell 2.28 per cent to 5,376.78 points and in Paris the CAC-40 shed 1.85 per cent to 2,926.83 points.
Elsewhere in Europe Madrid lost 2.26 per cent, Milan 1.31 per cent, Amsterdam 1.62 per cent and Brussels 1.62 per cent with shares in Dexia bank tumbling more than 10 per cent after ratings agency Moody’s warned on the bank’s access to funds.
In afternoon trade on Wall Street, the Dow Jones Industrial Average was down 0.10 per cent while the S&P 500 rose 0.33 per cent and the tech-heavy Nasdaq added 0.52 per cent to 2,401.19.
The euro struck $1.3238 – the lowest point since January – just as a meeting of eurozone finance ministers began in Luxembourg to review the situation in Greece.
The European single currency later recovered slightly to stand at $1.3260, down from $1.3390 in New York late on Friday.
The euro hit a 10-year low at 101.71 yen from 103.27 yen on Friday. The dollar dropped to 76.70 yen from 77.11 yen.
“We’ve begun the fourth quarter in much the same way as we ended the third. European equities were under pressure from the open after falls in Asian Pacific markets overnight ... following news that Greece will miss yet another deficit target,” said analyst David Morrison at GFT trading group.
“Although the major stock indices have managed to bounce off lower levels, they look vulnerable to further selling. Europe’s leaders have no good choices and continue to pretend that their problems will eventually be solved by stronger growth alone,” he said.
The acknowledgement by Greece on Sunday that it would miss its deficit targets raised further uncertainty over whether its latest cuts would be enough for it to secure the next tranche of its multi-billion euro bailout.
Athens needs the payment to avoid bankruptcy.
In the US, a purchasing managers index from the Institute of Supply Management showed a surprise rise indicating expansion in the manufacturing sector for August, the 26th consecutive month.
Asian stocks plunged yesterday, with Hong Kong closing down 4.38 per cent, Tokyo dropping 1.78 per cent and Sydney shedding 2.78 per cent.
World stock markets endured their worst quarterly losses since the 2008 financial crisis in the three months to September as investors dumped equities for safer assets on worries over a global recession.
“With stocks down and bonds up this can mean only one thing,” said Simon Denham, analyst at Capital Spreads trading group.
“Traders are in no mood for taking risks as economic growth has shown a slow down and leaders assess what effect a potential Greek default would have on the growth of emerging economies.”