London: The euro wilted to a 14-month low against the dollar on Thursday and stock markets suffered further losses as comments on the Greek debacle by the European Central Bank (ECB) failed to calm investor nerves.
Earlier gains by both equities and the single currency were wiped out following remarks on Greece from ECB head Jean-Claude Trichet.
Trichet, addressing a press conference after a meeting of ECB policymakers in Lisbon, did try to shore up eurozone confidence, dismissing the possibility of default by Greece and rejecting comparisons of the Greek financial meltdown with fiscal pressures on Spain and Portugal.
“Default is for me out of the question,” Trichet said.
Trying to quell market fears the financial turmoil afflicting Greece might spread to other countries in the 16-nation eurozone, he asserted: “Spain and Portugal are not in the same boat ... I would say Spain is not Greece.”
But he also disclosed that the bank’s governing council had not discussed the possibility of buying government bonds, as many analysts have speculated it will, as a means of providing debt-crushed governments with financial support.
“The key message is that the ECB will take care of monetary policy but governments have to take care of the fiscal situation,” said Fortis economist Nicholas Kounis.
Following the Trichet press conference the euro dropped to $1.2654, its lowest reading since 11 March 2009. The currency later traded at $1.2673 against $1.2810 late Wednesday in New York.
In London the FTSE 100 index of leading shares fell 1.52% to close at 5,260.99 points while in Paris the CAC 40 shed 2.20% to finish at 3,556.11. The Frankfurt DAX slipped 0.88% to 5,906.
Elsewhere in Europe losses ranged from 0.95% on the Swiss Market Index to 4.26% in Milan. Bucking the trend was Athens, where shares edged up 1.0% after a big loss on Wednesday.
US stocks sank again, pushing down after a flat open on the eurozone tensions and as investors awaited for monthly US jobs figures to be released on Friday.
At mid-day the Dow Jones Industrial Average was down 0.90% at 10,768.52 while the Nasdaq had lost 1.29% to reach 2,371.30.
Borrowing costs for Greece and Portugal widened, reflecting rising market pressures on their sovereign bonds. The yield, the interest Greece would have to pay to raise new money, rose to 10.932% from 10.025% on Wednesday for 10-year paper.
The yield on the Portuguese 10-year sovereign jumped to 6.091% from 5.762%.
“Traders are still far from convinced that Greece won’t default or restructure its debt,” said IHS Global Insight economist Howard Archer.
Added Mark Bolsom, head of the trading desk at Travelex Global Business Payments: “The seriousness of this situation cannot be overemphasised.
“The euro is under heavy selling pressure as the situation in Greece reaches crisis point. The markets are worried that Greece will default on their loan repayments and have no confidence in the bailout package the IMF are trying to push through.”