European stocks plunge after G8's shaky economic outlook

Tuesday June 16, 2009

LONDON: European stock markets plunged on Monday after G8 finance ministers over the weekend warned the economic outlook remained risky and uncertain despite some signs of the global crisis bottoming out.

The FTSE 100 index in London lost 2.61 percent, the CAC 40 in Paris fell 3.20 percent and the Dax in Frankfurt plummeted 3.54 percent.

The DJ Euro Stoxx 50 index of leading eurozone shares slid 3.02 percent.

On the foreign exchange market, the European single currency slumped to 1.3786 dollars on Monday from 1.4021 dollars late on Friday on concerns that the 16-nation eurozone economy may take longer to recover.

On Wall Street, the Dow Jones Industrial Average was down 2.16 percent and the tech-heavy Nasdaq index fell 2.72 percent by mid-day. Earlier in Asia, Hong Kong dropped 2.07 percent and Tokyo fell 0.95 percent.

Finance ministers from the G8 leading world economies meeting in Italy over the weekend agreed there were "signs of stabilisation" in the economic situation but also warned the outlook was uncertain and "significant risks" remained.

There were also disagreements over whether Europe should test the capital requirements of its crisis-hit banks and publish the results, and over what to do about rising budget deficits incurred by governments fighting the crisis.

Patrick O'Hare of US market analysis firm Briefing.com said: "This negative disposition is being attributed to reports that Russia made dollar-supportive comments and that G8 ministers discussed how they should prepare to unwind stimulus spending as the economic recovery begins to take root.

"Of course, this could also be a case of participants simply looking for a reason to take some money off the table," O'Hare said, noting the Standard and Poor's 500 index still stands 42 percent above its March 6 low.

Leading the plunge in Europe were mining and energy companies hit by falling commodity prices.

Elsehwere in Europe, Madrid lost 2.01 percent, Geneva 2.20 percent, Brussels 2.96 percent, Amsterdam 2.72 percent and Milan 3.01 percent.

"Miners were the main culprit ... as they took a combined hit from a strong dollar coupled with a fall in commodity prices," said analyst Philip Gillet at financial spread-betting firm IG Index.

Xstrata lost 7.11 percent to 706 pence, Rio Tinto fell 6.93 percent to 2,900 pence while Lonmin plunged 9.78 percent to 1,300 pence.

Gillet added: "Right now, investors seem happy taking any quick wins while they can, waiting to see where the next major movements will come from." Nervous investors were also keeping one eye on the latest swine flu developments after the World Health Organisation last week declared the virus to be a global pandemic, said dealer Matt Buckland at CMC Markets.

Authorities appealed for calm on Monday after Britain confirmed the first swine flu death outside the Americas since it was first reported in Mexico two months ago and the pandemic spread to isolated island communities in Asia.

"We are still some way from this having a tangible economic impact but comments suggest that the spread of a virus like this will be unpredictable in its nature so this could again add to the caution and once again give traders reason not to push the FTSE 100 back above that 4,500 (points) level," Buckland said.


(AFP)