London: European shares sank to a two-month closing low on Tuesday, as investors’ confidence was rattled by growing concerns that Greece’s massive bailout may not prevent a wider euro zone debt crisis.
The FTSEurofirst 300 index of leading European shares closed 3% lower at 1,033.18 points, its lowest closing level since early March, and crossed into negative territory for the year, down 1.2%.
The index, which rose nearly 26% in 2009, has come under pressure in the last two months as investors fretted over the fiscal health of eurozone states. A €110 billion ($146.5 billion) European Union/International Monetary Fund bailout for Greece has so far offered little relief to calm concern about a possible contagion.
Banks were among the biggest fallers, with Barclays, HSBC, Societe Generale, BNP Paribas and Deutsche Bank down 1.9 to 6.1%.
Spanish lenders Banco Santander and BBVA tumbled 7.1 and 7.6% respectively, while Greek bank stocks fell 10.3%.
The euro tumbled to a one-year low below $1.31 and the risk premium on Greek, Portuguese and Spanish bonds soared
Investors were uncertain about Athens’ ability to push through ambitious budget cuts, promised in exchange for aid, as unions stage strikes and shut down tax offices, government ministries, schools and hospitals.
“The agreement with Greece in principle is good but it is going to impose a huge amount of hardship and it is not clear whether it will actually contain the contagion which has been spreading as a result,” said Mike Lenhoff, chief strategist at Brewin Dolphin.
Adding to the concern, German economy minister Rainer Bruederle said the international bailout package agreed for Greece is not intended to cover the country’s entire financial requirements for the next three years
In an effort to calm some worries, Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as “complete madness” a market rumour that the country would soon ask for 280 billion euros in aid from the euro zone.
Across Europe, the FTSE 100 index was down 2.6%, Germany’s DAX slipped 2.6% and France’s CAC 40 fell 3.6%.
Spain’s IBEX, Portugal’s PSI 20 and Greece’s stock market tumbled 4.2 to 6.7%.
Spill haunts BP
Energy stocks lost ground, with BP down 3% as investors fretted over the cost of the company’s battle against a giant oil slick off the southern coast of the United States.
BP has fallen around 17% since it reported two weeks ago a fire on the Deepwater Horizon drilling rig, which subsequently sank, unleashing a massive oil flow into the sea.
Miners were under pressure, hurt by the Australian government’s decision to impose a new 40% mining tax.
Eurasian Natural resources, Kazakhmys, BHP Billiton, Xstrata and Rio Tinto fell 6.4 to 11.3%.
Among individual movers, Inmarsat gained 2.2%, with traders citing renewed talk of a bid interest from stake holder Harbinger.
Defensive issues gave some support to the index, benefitting from a perceived safe-bet appeal. British American Tobacco rose 1.9%, while drugmakers GlaxoSmithKline and AstraZeneca added 0.3 and 0.7% respectively.