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Financial turmoil continues to trouble European markets

Published on 17/09/2008

Frankfurt -- Share prices declined for the second day in a row on Tuesday as fallout from the US credit crunch continued to play havoc on European stock markets.

The major exchanges in London, Paris and Frankfurt all edged downward, although losses were not as great as on Monday when more than 4 percent was wiped off the value of shares.

Again, banks and other financial institutes were the biggest losers as the markets studied the implications of Monday’s collapse of leading US investment broker Lehman Brothers.

In Frankfurt, Commerzbank suffered a dramatic fall of close to 18 percent to €13.08, as the leading DAX index saw a 2.7-percent fall on the day to levels around 5,900.

Deutsche Post Bank and insurance giant Allianz, which are in the throes of selling its subsidiary, Dresdner Bank, to Commerzbank suffered falls of around 10 percent.

Only five of the 30 shares listed on the DAX were in positive territory, led by Volkswagen, which rose 2.45 percent on news that Porsche had taken a controlling stake.

After a roller-coaster session that saw the Paris Bourse’s benchmark CAC 40 flirting with a gain early in the day, shares plummeted by 2.85 percent in mid-afternoon trading, to 4,049.96.

Belgian bank Dexia, which said Monday it owned €500 million ($709 million ) in unsecured bonds of the bankrupt US investment bank Lehman Brothers, led losers, falling by 13.30 percent.

French bank Credit Agricole lost 9.73 percent while Societe Generale and BNP Paribas were down 7.18 and 6.5 percent, respectively.

In London, the Financial Times Index fell by 2.9 percent to its lowest level since June 2005. For the second day, Britain’s biggest mortgage lender, Halifax Bank of Scotland (HBOS), was hardest hit, seeing its share price drop more than 26 percent to 171.2 pence.

At one point, the HBOS share price dipped by 57 percent before recovering. As on Monday, shares in Royal Bank of Scotland (RBS) were also badly affected, falling by nearly 20 percent to 190.7 pence.

Barclays dipped by 16.75 pence to 299.25 pence after the leading British bank announced that it was seeking to buy some of Lehman Brothers’ assets.

In Vienna, Austria’s leading index ATX lost 6.28 percent of its value by 3:30 p.m., falling below the 3,000 mark for the first time in more than three years.

The market was pulled down by Raiffeisen International Bank-Holding AG, which plummeted by 11.76 percent, and Vienna’s airport Flughafen Wien AG, which declined 10.65 percent.

The Ibex-35, the main index of the Madrid stock exchange, plunged 2.1 percent. Banks Santander, Sabadell and Banco Popular tumbled 1.8 percent, Banco Bilbao Vizcaya Argentaria (BBVA) 1.25 percent, and Banesto 0.57 percent.

In Oslo, the OSEBX index was down 3 percent mid-morning as oil shares declined because of a drop in crude prices. The Stockholm bourse was down 1 percent, with banks and energy companies the biggest losers.

The Bank of England Tuesday pumped an extra 20 billion pounds ($36 billion) into money markets, following a similar move by the European Central Bank (ECB) on Monday.

The Bank of England said the action was being taken "in response to conditions in the short-term money markets this morning."

In Berlin, German Finance Minister Peer Steinbrueck called for calm, although he acknowledged a "very difficult and serious situation" on world financial markets.

Although the crisis was the worst in decades, there would be no "domino effects" in Europe and no widespread bank failures, Steinbrueck predicted.