CORRECTED: Risk aversion clouds global economy

1st July 2010, Comments 0 comments

Fears for the global economy resurfaced on Thursday with stocks falling on worries about a deadline for European banks to repay record loans of 442 billion euros, Chinese data and Spanish debt.

Markets worldwide showed the strain of more poor economic data, just days after G20 world leaders vowed in Toronto to slash state debt and nurture a shaky rebound.

European equities were down from the open, as London lost 1.27 percent, Frankfurt fell 1.07 percent and Paris shed 1.95 percent. In Asia Tokyo closed down 2.04 percent to reach its lowest level since November.

The European Central Bank made unexpectedly big special loans to help banks pay off the record one-year borrowing just before Thursday's deadline to repay the 442 billion euros, with Eurozone banks asking for 111.2 billion euros (136.7 billion dollars) in six-day loans.

In all 78 banks asked for funds, a day after 171 banks borrowed 131.9 billion euros for three months in an operation that initially eased market worries over a credit squeeze that might hamper a eurozone economic recovery.

Attention will now turn to the release later this month of bank stress tests designed to determine if they can withstand exceptional shocks like defaults by major borrowers.

The loans have added to wider fears for the health of the eurozone, battered by Greece's debt woes and the threat of contagion to other European Union nations.

Madrid tumbled by more than 3.0 percent after international ratings agency Moody's put Spanish government debt on review for a possible downgrade late on Wednesday.

The Madrid market clawed back ground later on Thursday to show a loss of 1.8 percent, after a successful debt bond placing of 3.5 billion euros for five years.

The ripples were felt across world markets.

"The FTSE opened in desperate fashion this morning on the news that China's manufacturing growth has slowed and Spain's sovereign debt problems have intensified," said IG Index senior sales trader Yusuf Heusen.

Manufacturing activity in China slowed in June, official and independent surveys showed on Thursday, suggesting that government efforts to cool the fast-growing economy are working.

A separate survey released by a government agency on Thursday showed manufacturing activity slowed to 52.1 in June from 53.9 in May.

"Investors continued to sell risky asset classes and pull their money out of stocks, fearing a wider equity decline after poor Chinese manufacturing data show signs of slowing growth," said City Index analyst Joshua Raymond.

The European single currency rose to 1.2279 dollars in morning London trading, compared with 1.2228 late in New York on Wednesday.

In New York on Wednesday, stocks fell owing to poor employment data and jitters about Europe, capping Wall Street's worst quarterly performance in more than a year.

The Dow Jones Industrial Average slid 0.98 percent to end Wednesday at 9,774.02, a day after Wall Street shares slipped more than two percent and below the psychologically-sensitive 10,000 level.

The Dow has fallen 3.5 percent in June and for the quarter it fared even worse -- losing 10 percent -- the worst quarterly loss since its 13 percent drop in the first quarter of 2009.


© 2010 AFP

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