Monday, Jul 23, 2012
By Sara Sjolin
Italian and Spanish stocks tumbled on Monday, as government bond yields skyrocketed and bank shares fell on renewed uncertainty over Greece and growing fears that Spain may require a full bailout.
Trading in major Italian banks was suspended for about an hour during the morning after their shares incurred steep drops, while authorities in Spain and Italy imposed a ban on short selling to stem market volatility. European-listed resource firms also headed south, as oil and metals prices traded lower across the board to start the week.
The Stoxx Europe 600 index tumbled 2.5% to close at 251.75, outpacing a 1.4% loss sustained Friday, when concerns over Spain's debt situation dragged markets lower. U.S. stocks were lower on Wall Street.
"It is possible that we are entering the period that will determine the future of the euro zone," said Gary Jenkins, managing director at Swordfish Research. "On Friday it appeared that the market gave up on Spain," he wrote in a note.
The Spanish government lowered its gross domestic product estimates from this year through 2014 last week, while the region of Valencia said it would seek financial aid as it struggles to refinance maturing debts.
Over the weekend, the region of Murcia also announced it could apply for government bailout funds in September, according to La Opinion Murcia.
On Monday, Spanish stocks remained under heavy selling pressure with the IBEX 35 index dropping 1.1% to 6,177.40, trimming losses after a short-sale ban was imposed by the country's financial regulator.
Selling pressure also intensified on 10-year Spanish government bonds, sending the benchmark yield 21 basis points higher to 7.42%, according to electronic trading platform Tradeweb. The yield earlier hit a new euro-era high. A basis point is 1/100 of a percentage point.
Greece also moved back into the crisis spotlight, following a weekend report in Germany's Der Spiegel magazine that the International Monetary Fund is set to stop aid payments to the struggling country, stoking default fears as the country then may run out money in coming months.
The IMF responded Monday afternoon as a spokesperson said the fund "is supporting Greece in overcoming its economic difficulties. An IMF mission will start discussions with the country's authorities on July 24 on how to bring Greece's economic program, which is supported by IMF financial assistance, back on track."
The so-called troika of international lenders--the European Commission, the European Central Bank and the IMF--are due to arrive in Athens to gauge progress toward the requirements of its bailout program.
"It is looking like Europe will have to decide whether to throw more good money after bad or arrange some kind of debt-forgiveness program with Greece," Jenkins wrote in a note.
"Such an event may at least limit some of the potential contagion although there may well be growing speculation that Greece will need to leave the euro zone and if that is the case all will depend upon the manner of [its] leaving."
The Athens General Index sank 7.1% to 586.04, as shares of National Bank of Greece SA sank 11%.
Euro-zone fears also hammered Italian stocks, where the FTSE MIB index slumped 2.8% to 12,706.36, its lowest closing level since march 2009. Among the major Italian banks, shares of Intesa Sanpaolo SpA fell 1.8%.
The yield on the 10-year Italian government bond rose 17 basis points to 6.31%, according to Tradeweb. The pressure on Italian bonds and stocks emerged as the growing concerns over Spain and Greece spilled over to the country's economy, said Peter Dixon, strategist at Commerzbank in London.
"Italy is obviously in the firing line as all peripheral countries are under pressure," he said. "Because Italy has much bigger public debt, Italy matters more than the other. The epicenter of the earthquake may be one place, but the impacts may be elsewhere."
Elsewhere in Europe, France's CAC 40 index slumped 2.9% to 3,101.53, its worst daily performance since April.
Banks fell the most in the index, with BNP Paribas SA dropping 5.5%, Credit Agricole SA moving down 5.5% and Societe Generale SA selling off by 4.6%. Danone SA fell 3.2% after Societe Generale cut the yogurt maker to hold from buy.
Banks were also among top decliners in the U.K., where Royal Bank of Scotland Group PLC lost 3.3% and HSBC Holdings PLC skidded 3.5%. Overall, the FTSE 100 index closed 2.1% lower at 5,533.87.
Among resource shares, miner Anglo American PLC gave up 4% as oil group Royal Dutch Shell PLC slipped 1.6% in London, while Total SA lost 1.8% in Paris. Oil and prices were off across the board.
In Germany, all stocks ended the day in negative territory and dragged the DAX 30 index 3.2% lower to 6,419.33. Deutsche Bank AG fell 4.6% and Commerzbank AG declined 6.1%.
Bucking Monday's negative trend, shares of Royal Philips Electronics NV surged 5% after results showed the conglomerate swinging to a profit in the second quarter and beating analyst expectations.
Write to Sara Sjolin at AskNewswires@dowjones.com
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(END) Dow Jones Newswires
July 23, 2012 12:37 ET (16:37 GMT)