Eurozone jitters drag down stocks

2011-11-10 18:55

London - European shares ended lower in choppy trade on Thursday on concerns that political wrangling in debt-laden Italy to form a national unity government and high bond yield levels in the country may deepen the region’s two-year old debt crisis.

The FTSEurofirst 300 index of top European shares provisionally closed 0.3 percent lower at 963.00 points. The index is down 14 percent so far this year, mainly on worries the euro zone debt crisis could spread to other countries and threaten a fragile global economic recovery.

“Investors remain in no doubt that Italy is a serious concern for the euro zone and even the global economy as a whole,” said Angus Campbell, head of sales at Capital Spreads.

“If it does come to having to bail them out, then at this moment there isn’t enough cash in either the EFSF or IMF pots in order to prevent them from defaulting on their outstanding debts,” he said, referring to the European Financial Stability Facility and the International Monetary Fund.

Miners, which generally suffer during difficult economic conditions, were among the top decliners, with the sector index falling 1.5 percent, mirroring a sharp decline in base metals prices on poor demand prospects for raw materials.

Wall St steadies

U.S. stocks steadied  as the European Central Bank’s purchase of Italian bonds helped calm markets queasy over the euro zone debt crisis.

An Italian debt auction also went better than expected and signs of new governments in Italy and Greece eased fears of a euro zone break-up, sending stocks up sharply early but gains quickly eased.

The ECB aggressively bought short-term bonds, helping sentiment on Italy, which has replaced Greece as the biggest source of concern in Europe’s two-year-old debt crisis. But worries persisted that Italy’s borrowing costs were unsustainable.

“We are seeing some easing of the Italian bond rates and some confidence in the new Greek leadership but this has been a seesaw battle from the start. We get a piece of good news today, and then we get something else tomorrow,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

Europe “is definitely putting a cap on our rally here.”

The Dow Jones industrial average rose 66.98 points, or 0.57 percent, at 11,847.92. The Standard & Poor’s 500 Index was up 4.74 points, or 0.39 percent, at 1,233.84. The Nasdaq Composite Index was down 2.13 points, or 0.08 percent, at 2,619.52.
The S&P 500 saw its worst daily percentage drop since Aug. 18 on Wednesday.

Economic data showed new U.S. jobless claims declined for the second straight week to the lowest level since April, while the trade deficit unexpectedly shrank in September to its narrowest level since December.

Italy paid its highest yield in 14 years to sell 12-month debt in an auction, and while there was relief the sale went smoothly, worries festered that Italy’s borrowing costs were unsustainable.

In Greece, former European Central Bank vice president Lucas Papademos was appointed to head the country’s new crisis coalition.