World shares fell hard in trade on Tuesday, amid renewed fears over Europe's debt crisis after the weekend rescue of a Spanish regional bank, as well as rising tension between North and South Korea.
AFP - Global stock markets reeled Tuesday, extending heavy losses amid growing fears the European debt crisis threatens a return to recession and a spike in dangerous tensions between North and South Korea.
Investors, rocked by fresh turmoil in the Spanish banking sector, were also hit by the prospect of severe austerity measures in the eurozone that could slam the brakes on the fragile global economic recovery.
Reflecting the growing tensions, rates for money lent between commercial banks pushed higher, stoking worries there could be a repeat of the credit crunch of 2008 sparked by the collapse of US investment bank Lehman Brothers.
Investors meanwhile were buying safety -- the dollar and German government bonds -- in the hope of riding out a storm which has been building for months as first Greece and then other weaker eurozone states got into difficulty.
"Investors continued to flee risky asset classes on Tuesday... causing European indices to slump," said City Index analyst Joshua Raymond.
"Worries about the potential for high sovereign debt to destabilise growth is weighing down any appetite for risk."
Michael Hewson, analyst at CMC Markets, said there were "increased fears about the stability of the European banking system and the financial viability of sovereign governments" after the latest problems in Spain.
"Bank borrowing costs... have risen to their highest levels since July last year on concerns about the integrity of the European banking system," he said, adding that markets were now worried about a double-dip recession.
In New York, the blue-chip Dow Jones Industrial Average spent most of the morning well under the symbolic 10,000 points mark after clawing back a fraction of the 250-plus-point drop seen at the open.
Concerns about the health of the eurozone and tensions between North and South Korea sent investors fleeing into safe-haven investments such as US government bonds.
At around 1530 GMT, the Dow was down 1.94 percent to 9,870.00 points while the tech-rich Nasdaq Composite shed 2.11 percent.
Amid the turmoil, news that US consumer confidence -- a key component for any economic recovery -- improved for the third straight month in May was lost.
"The improvement has been fueled primarily by growing optimism about business and labor market conditions. Income expectations, however, remain downbeat," said Lynn Franco, the head of the Conference Board's consumer research department.
In Europe, London's benchmark FTSE 100 index of leading shares slumped 2.54 percent to 4,940.68 points. In Paris, the CAC 40 fell 2.90 percent to 3,331.29 points and in Frankfurt the DAX lost 2.34 percent to 5,670.04 points.
Other European markets fared even worse, with Madrid down 3.05 percent and Milan losing 3.40 percent but these two markets were well off their early lows.
"There is a combination of factors pulling the rug out from under the market," said IG Index analyst David Jones in London.
"European debt concerns are brought to the fore again as four of Spain's (regional) banks have been pushed into a merger by the government in a move to try and strengthen the region's financial institutions.
"Added to this are increased tensions between North and South Korea on reports that the North has gone onto military alert" after it was blamed for sinking a South Korean navy ship.
Meanwhile, the European single currency was at 1.2282 dollars in late London trade, coming off an early low of 1.2178 dollars as the US unit attracted investors but still well short of 1.2361 dollars in New York Monday.
In Asian trade earlier Tuesday, stocks were hit by reports that North Korea was on combat alert after it was blamed for the sinking of a South Korean ship in March.
Tokyo lost 3.06 percent, hitting its lowest level since November 30, Hong Kong dropped 3.47 percent and Shanghai shed 1.90 percent.
"The bloodbath continues on equity markets as a heightened sense of concern creeps back in to traders' minds," said ODL Securities analyst Owen Ireland.
"Whilst the previous falls could have been interpreted by some as buying opportunities, there now appears to be deeper-rooted misgivings about the health of the global economy."
Date created : 2010-05-25