Europe closes down amid stock market turmoil

REUTERS - Equity markets fell sharply for an eighth day on Friday in a dizzying descent that has wiped $2.5 trillion off the value of world stocks this week and brought back memories of the 2008 financial crisis.

World leaders moved to address the turmoil, which has been driven by fears the world economy is slipping back into recession and by the inability of policy makers in Europe to extinguish the debt crisis engulfing the region.

As equity markets slid, the dollar extended losses against the Swiss franc to a fresh record low as investors sought safety in the Swiss currency. The dollar fell as low as 0.75776 Swiss francs on trading platform EBS, before pulling back slightly to 0.7589, down 0.8 percent on the day.

China and Japan called for global cooperation and French President Nicolas Sarkozy was due to discuss the financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero.

Brazilian Finance Minister Guido Mantega said the world economy “is in a situation of stress” and South American nations must work together to create mechanisms to protect their economies from turmoil.

News of stronger-than-expected U.S. jobs growth in July assuaged some of the worst fears in markets but was not enough to spur sustained buying after an early bounce.

The dollar fell against the euro and yen, helping the euro recover from a fresh three-week low of $1.4055 hit earlier in the session.

Analysts said deep-rooted economic problems both in the United States and globally were eclipsing the jobs report.

“(It) doesn’t solve anything. View it more as a selling opportunity rather than a reason to get back involved on the long side,” said Michael Marrale, managing director and head of sales trading at RBC Capital Markets in New York.

U.S. Treasury debt prices fell after the data, reversing some of the gains made in Thursday’s panicked, risk-averse trade. The benchmark 10-year Treasury note fell 13/32 in price, its yield rising to 2.45 percent.

The Dow Jones industrial average dropped 176.30 points, or 1.55 percent, to 11,207.38. The Standard & Poor’s 500 Index dropped 25.47 points, or 2.12 percent, to 1,174.60. The Nasdaq Composite Index dropped 76.90 points, or 3.01 percent, to 2,479.49.

MSCI’s All-Country World Index fell 2.7 percent, while European stocks fell 1.7 percent.

European shares saw their biggest weekly decline in nearly three years on Friday and hit their lowest in a year.

Industrial commodities were also hit. Three-month copper fell 3.6 percent to $9,022 a tonne, the lowest since June 29. It lost 1.9 percent in the last session.

The Reuters-Jefferies CRB index, a global commodities benchmark, fell to a seven-month low on Friday as raw materials markets saw one of their biggest sell-offs since the financial crisis on global economic worries.

Intervention

Apart from signs that the U.S. and global economies are weakening despite record low interest rates and the pumping of liquidity into the system, the focus was clearly on Europe, where bond yields in Spain and Italy have been blowing out, threatening the same kind of refinancing problems that have already slammed Greece, Ireland and Portugal.

The European Central Bank disappointed investors on Thursday by buying Irish and Portuguese bonds but not Italian or Spanish debt.

“Would the ECB please get serious?” Berenberg private bank said in a note. “We need a circuit breaker to stop the vicious circle in which fear feeds on fear.”

“The Swiss National Bank is caught between a rock and a hard place. It’s difficult to see the franc being anything but well bid in the current environment,” said Jane Foley, senior currency strategist at Rabobank.

The ECB bought Portuguese and Irish government bonds, slightly easing pressure on Italian and other euro zone peripheral debt, which had earlier offered euro-era high premiums over less risky Germany.

But Italian 10-year government bond yields rose above their Spanish equivalent.

Italy has emerged as the market’s major concern after a rescue deal that was intended to stop the spread of the crisis failed to convince investors it had the firepower to ease pressure on the vast Italian bond market.