London: European shares plunged to a three-month low in early trade on Friday following hefty sell-offs on Wall Street, with mounting concerns about a severe debt crisis in the euro zone forcing investors to dump equities.
The FTSEurofirst 300 index of top European shares pared early losses but was still down 1.5% at 991.24 points at 2:25pm, after falling to 978.49 - the lowest since early February.
The index, which closed 1.6% lower in the previous session, has fallen about 12% in three weeks, but is up 52% since hitting a record low in March last year.
Investors sold energy shares as crude oil hovered around $77 a barrel after falling sharply in the previous session on concerns about Greece and bearish global growth prospects.
BP, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed 1 to 2.5%.
“It is clear that the euro zone is in a very difficult situation and there is no quick fix,” said Tammo Greetfeld, equity strategist at UniCredit.
“It looks like that foreign investors, particularly US investors, yesterday for the first time significantly acknowledged that there are some risks emanating from the euro zone that could be severe.”
US stocks sank 9% in the last two hours of trading on Thursday, before clawing back some of the losses, as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray. US stock index futures
rose, signalling a recovery on Wall Street on Friday.
Shock waves from the relatively small Greek economy reverberated around the world, as investors worried about the chances of other European governments facing a similar debt crisis. Group of Seven finance ministers said they would discuss the Greek bailout later on Friday.
Euro zone leaders also meet later in the day in a special summit, while Germany’s parliament is to vote on the €110 billion bailout ($140 billion) later in the day.
The STOXX Europe 600 banking index turned positive and was up 0.3% after HSBC said its financial performance in the first quarter of 2010 was very good and well ahead of the first quarter of 2009.
HSBC shares extended gains and were up 4.3%.
Several other banks also pared early losses, but stayed in negative territory. Barclays, Lloyds, Societe Generale, National Bank of Greece and EFG Eurobank falling 0.6 to 3.2%.
Royal Bank of Scotland was down 0.7% despite beating expectations with a return to profit in the first quarter.
European investment-grade corporate credit default swaps hit their widest levels in just over a year, while the premium investors demand to buy peripheral euro zone government bonds rather than benchmark Bunds rose as contagion fears from Greece’s debt crisis refused to abate.
Britain’s FTSE 100 index was down 0.3% and sterling sank to a one-year low against the dollar after incoming results of a UK general election suggested the country was heading towards a hung parliament.
Drugmakers, generally seen as defensive plays, were also hurt following bearish market sentiment. AstraZeneca, GlaxoSmithKline, Merck, Novartis, Novo Nordisk, Roche Holding, Sanofi-Aventis and Shire fell 0.2 to 1.9%.
Investors awaited April’s US non-farm payrolls data, with economists polled by Reuters expecting the numbers to show that employers added 200,000 jobs in April after a 162,000 increase in the previous month.