Stock Market Down
November 9, 2011 by staff
Stock Market Down, European stocks have closed sharply lower as any early optimism that the resignation of Italian Prime Minister Silvio Berlusconi would calm the markets disappeared in a wave of near panic.
Dealers said investors first thought Berlusconi’s decision would clear the decks but as it became clearer that Italy faces possibly months of political uncertainty, they decided on safety first and put their money elsewhere.
Italian borrowing rates soared as a result to seven per cent and above, levels judged to be unsustainable in the longer term and putting its already strained public finances under even more pressure.
In the fallout, stock markets stumbled badly and the euro tumbled as investors flocked into safe haven US and German government bonds, seen as the benchmark holdings to have in troubled times.
“The Italian bond market is in distress,” said Kathleen Brooks, ananlyst at traders Forex.com.
“Although Berlusconi promised to resign after the passage of austerity reforms get through parliament, the bond market may be reacting to the potential for a fractious coalition government getting into power, which could only exacerbate Italy’s fiscal situation,” she said.
In London, the FTSE-100 index of top companies closed down 1.92 per cent at 5,460.38 points on Wednesday.
In Paris, the CAC-40 lost 2.17 per cent to 3,075.16 points.
In Frankfurt, the DAX 30 dropped 2.21 per cent to 5,829.54 points.
Milan led the losers, falling 3.78 per cent after being down more than four per cent at one stage. Madrid, also seen as a possible eurozone debt crisis victim, was down 2.09 per cent.
Someanlysts said the crisis could be at the tipping point, with Italy too big to bail out given its economy is the third largest in the eurozone, accounting for 20 per cent of the bloc’s output.
“The bout of pessimism that gripped stocks … is showing no sign of lessening its grip as the eurozone continues to shuffle its way toward the precipice,” said Yusuf Heusen, sales trader at IG Index in London.
Berlusconi’s decision “has done nothing to help stem the spiralling rise of Italian bond yields, leading some commentators to suggest that on paper the country is now past the point of being able to (be saved)”, he said.
IHSanlysts said “alarm bells are ringing that Italy is perilously close to slipping into insolvency” but they said they thought Rome could keep its head above water for some months yet.
The acute tensions surrounding Greece and Italy pushed the euro below $US1.36 for the first time in a month to $US1.3598 in late London trade, down sharply from $US1.3836 late in New York on Tuesday. The dollar firmed to 77.76 yen from 77.70 yen.
Gold fell to $US1,784 an ounce from $US1,795.
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