European stocks closed mostly lower yesterday, with the notable exception of Madrid, amid growing speculation the Spanish government will ask for EU help for its stricken banks.
Dealers said concerns over Spain – hit by a drastic three-notch Fitch ratings downgrade on Thursday – and disappointment that the US Federal Reserve plans no immediate new stimulus measures more than offset the impact of China’s first interest rate cut in three years.
The losses, however, were modest, coming after a strong technical bounce earlier in the week and with investors adjusting positions before the weekend when reports say EU officials may discuss a Spanish aid request.
A modest turnaround on Wall Street also helped as US President Barack Obama said European leaders were well aware of the need to act to solve a eurozone debt crisis that is threatening global growth prospects.
In London, the benchmark FTSE 100 index of top companies closed down 0.23 per cent at 5,435.08 points.
In Frankfurt, the DAX 30 slipped 0.22 per cent to 6,130.82 points and in Paris the CAC 40 lost 0.63 per cent to 3,051.69 points.
Madrid bucked the trend, gaining 1.77 per cent amid increasing speculation the government will call, perhaps as early as this weekend, on the EU for help to stabilise its struggling banks.
The market view is that outside help for the banks would take the pressure off Madrid and give the government greater leeway to get the economy growing again and stabilise the public finances.
The European single currency meanwhile gave up most of Thursday’s gains, sliding to $1.2482 from $1.2561 late in New York on Thursday. It struck a 23-month low late last week at $1.2288.
In New York, the market opened lower after Federal Reserve Chairman Ben Bernanke disappointed investors hoping for fresh stimulus for the faltering US economy but then picked up slowly to post modest gains.
The blue-chip Dow Jones Industrial Average was up 0.20 per cent at around 1600 GMT, with the tech-rich Nasdaq Composite gaining 0.40 per cent.
President Obama conceded the solutions to Europe’s problems “are hard.” He said: “The decisions required are tough but Europe has the capacity to make them and they have America’s support.”
Frederic Dickson at DA Davidson & Co said:“Today, investors appear to be focusing on Europe, expecting Spain to formally ask the European Central Bank for bailout funds to recapitalise some of its banks.”
In London, IG Index analyst David Jones said Bernanke’s comments undercut the week’s rebound.
“A cautious outlook and no commitment to further economic stimulus from the US central bank has been seen as good an excuse as any by traders to put the brakes on the strong rally seen for blue-chips so far this week.”