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EU markets wobble as banks bear brunt of crisis

Latest update : 2008-09-29

Europe's stock markets took yet another dive on Monday morning as investors await the outcome of a key US bailout plan. Fortis shares plunged one day after the Benelux bank was partially nationalised.

World stocks tumbled on Monday, led by sharp falls in Europe as three European banks became the latest casualties of spreading credit woes, forcing partial nationalisations and overshadowing Washington's bailout plan.
The euro fell nearly 2 percent at one point while the dollar and safe-haven government bonds surged as the Belgian, Dutch and Luxembourg governments rescued financial firm Fortis over the weekend to prevent a domino-like spread of failure.
The UK government said lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group will be nationalised.
Moreover, Iceland's government bought a 75 percent stake to take control of Glitnir bank after the bank's funding position deteriorated in recent days, knocking the crown currency to record lows against the euro.
German lender Hypo Real Estate struck a last-minute deal with the government and a consortium of banks to resolve a refinancing squeeze.
The money market remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting central banks in Europe and Asia to pump in more cash.
U.S. lawmakers were due to vote later on Monday on a $700 billion toxic debt fund after more than a week of negotiations.
"One sees now, that not only American but also European banks are affected and that the crisis is after all global," said Carsten Klude, strategist at MM Warburg.
"A rescue plan worth 700 billion is simply not enough to overcome the crisis for the foreseeable future. If anything, all the real economy problems will escalate as a result in the foreseeable future."
MSCI main world equity index fell 2 percent to its weakest in more than a week. The FTSEurofirst 300 index was down 3.3 percent, while a measure of banking stocks lost 5.4 percent.
"The nationalisations have an incredibly negative read across the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and everyone's asking: who's next?"
The December U.S. S&P 500 future was down 1.9 percent, reversing initial gains on news the bailout plan was set for a vote in the House of Representatives.

Currency markets also felt the pinch of banking sector contagion, with the euro falling more 2 percent to a 10-day low of $1.4301. A fall of 2.1 percent or more would be the biggest 1-day fall since Jan 2001, while a fall of 2.3 percent or more would be the biggest since its launch in 1999.
In addition, sterling dropped more than 2 percent to $1.7962, heading for its steepest one-day loss since mid-1993.
The Icelandic crown lost more than 3 percent to its all-time low of 143.27 against the euro while it lost over 5 percent against the dollar to a six-year trough.
As European currencies fell broadly, the dollar rose 1.2 percent against a basket of six major currencies.
December Bund futures were 88 ticks higher, drawing in safe-haven demand.
The interbank cost of borrowing dollars for three months indicated on Reuters system rose as high as 5.27 percent, the highest this year.
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points.
Emerging sovereign spreads widened 2 basis points while emerging stocks lost 2.5 percent.
U.S. light crude fell 3.2 percent, reflecting growing concerns over energy demand as the financial crisis spread further to Europe.
Gold ticked lower to $876.65 an ounce.

Date created : 2008-09-29