London: European shares fell to their lowest close in nearly nine months on Tuesday, with banks hit as interbank lending rates rose and worries persisted that austerity measures to be taken in European economies will hurt growth.
The pan-European FTSEurofirst 300 index fell 2.4% to 949.87 points, its lowest close since early September, 2009. The index is down more than 14% from a peak last month over worries about the euro zone’s sovereign debt problems.
Banks to fall on Tuesday included Bank of Ireland, Allied Irish Banks, Banco Santander, BBVA, Credit Agricole, Lloyds, Societe Generale and UniCredit, down between 3.9% and 12.8%.
Some upbeat US economic data helped the index come off its low of 939.64 for the day.
“Consumer confidence was a very strong number but when you take out the day-to-day noise what’s driving the markets so badly at the moment is concern about European banking risk, with a focus on savings banks in Spain after the restructuring of CajaSur,” said Bob Parker, vice chairman of asset management at Credit Suisse.
He added: “Concern is shifting to what writedowns banks are going to have to make, and to what extent is there a systemic problem in the Spanish savings bank system.”
Southern European countries such as Spain and Greece have announced radical austerity measures to cut their national debt, but strategists say this may hurt growth.
Dollar interbank rates rose on Tuesday and were seen pushing higher as the euro zone debt crisis made banks wary of lending to European peers. Bund futures hit a record high.
Across Europe, the FTSE 100, Germany’s DAX and France’s CAC 40 ended the day between 2.3% and 2.9% lower. Wall Street was lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 1.7% and 1.9%. Spain’s IBEX lost 3.1%, Portugal’s PSI 20 fell 2.8% and Italy’s benchmark was down 3.4%.
Oils, pharmas fall
Virtually every sector fell, but oils and drug makers were among those taking most points off the index.
Crude prices fell more than 2%. Total, Repsol and StatoilHydro fell between 1.3% and 3.5%.
BP fell 1.6%, and is down more than 27% from a peak last month as it has not yet managed to shut off the oil gushing from its deepwater well blowout in the Gulf of Mexico.
Heavyweight pharmaceuticals to fall included GlaxoSmithKline and Roche, down 2.1% and 2.2% respectively. Nervousness in the market was exacerbated by heightened political tensions on the Korean peninsula after the North Korean leader Kim Jong-il ordered his military to be on a combat footing.
“When you have uncertainty like this you have a flight to quality and an exit from equity markets,” said Parker.
Macroeconomic news, however, was generally upbeat. US consumer confidence rose for the third straight month in May to the highest in more than two years.
Single-family home prices were unchanged in March from February, but fell in the first quarter on renewed price pressure as federal aid faded away, Standard & Poor’s/Case Shiller home price indexes showed.
Euro zone industrial new orders rose in March at their fastest rate in 10 years.