Problems with the banks

5 February 2008

MADRID – The international situation is continuing to test the ability of European markets to recover from last month’s pummelling, and yesterday was no exception as stocks pulled back on more bad news out of the United States.

The Ibex 35 ended the session with a discreet gain of 0.16 percent to close above 13,500 points, although at the highpoint of trade during the day it climbed to 13,650 points, a gain of 1.17 percent on Friday’s close.

However, the clouds quickly rolled in late in the day, accumulating most clearly over the big stocks as investors retreated once more from banks. In contrast to the blue-chip laden Ibex 35, the Ibex Medium Cap added 1.82 percent, while small caps rose by 1.75 percent.

The pullback in the financial sector was driven in large measure by the decision of analysts with a Swiss bank to sharply lower their target price for shares of several Spanish banks in light of the ongoing credit and financial crises.

Meanwhile, data out of the United States gave investors further pause for thought even if, in themselves, the figures were not very different from those of previous months. Factory orders, for example, rose by 2.3 percent in December, the slowest pace in five months and accumulated an increase of just 1.4 percent throughout last year. US companies planned layoffs increased 69 percent last month from December. And the US government lowered its growth forecasts for this year and next.

In that atmosphere, the New York exchanges opened lower and dragged down shares by the close in Europe. Meanwhile, European investors’ hopes for an interest rate cut appeared to be quashed by figures showing that industrial prices climbed 4.3 percent at the end of last year, further fuelling overall inflation.

Subject: Spanish news