By PAN PYLAS, AP Business Writer Pan Pylas, Ap Business Writer – 24 mins ago
LONDON – Stock markets in Portgual, Spain and Greece led a global retreat for the second day running Thursday as investors fretted over their governments' ability to get a grip on their borrowings. The euro plunged below $1.38 for the first time in seven months.
In Europe, the FTSE 100 index of leading British shares was down 108.85 points, or 2.1 percent, at 5,144.30 while Germany's DAX slid 121.64 points, or 2.1 percent, to 5,550.45. The CAC-40 in France was 72.45 points, or 1.9 percent, lower at 3,721.02.
Even worse were the stock markets in the three debt-ridden economies of southern Europe — Greece's main composite index was down 3.3 percent, while Spain's IBEX slid 5.2 percent and Portugal's PSI 20 slumped 5.7 percent.
The selling was evident in the U.S. too — the Dow Jones industrial average was down 173.90 points, or 1.7 percent, at 10,009.65 soon after the open while the broader Standard & Poor's 500 index slid 22.24 points, or 2 percent, at 1,075.04, after weak jobs data ahead of Friday's crucial US monthly non-farm payrolls data.
"It's a bloodbath out there and Greece is to blame; this theme of sovereign debt risk is rife and at the forefront of investors' concerns," said Neil Mackinnon, global macro strategist at VTB Capital.
"The markets are not convinced that the Greek government can achieve its targets and that is reflected in contagion elsewhere," he added.
European Central Bank president Jean-Claude Trichet did his best earlier to dampen down market concerns surrounding Greece.
Though he said it was "absolutely crucial" that the Greek government stick to its plan to get the budget deficit down from a staggering 12.7 percent of the country's gross domestic product in 2009 to below 3 percent in 2012, he said he was "confident" that it would achieve its goals.
Despite his backing, which followed the European Commission's cautious acceptance of the Greek plan on Wednesday, the markets remain unconvinced that Greece can pull it off and are increasingly coming round to the view that Portugal and Spain, in particular, will face mounting difficulties dealing with their own budgetary difficulties.
On Wednesday, Portugal cut a planned treasury bill issue and Spain said its deficits will be more than anticipated over the coming three years.
Trichet was speaking after the bank kept its interest rate unchanged for the ninth month running at 1 percent and indicated that borrowing costs were unlikely to rise any time soon, partly because of the debt difficulties afflicting some of the eurozone's countries.
"While the European Central Bank is right to refuse to make any commitments towards those countries which struggle to bring public finances under control, the impact of the crisis may yet force them to leave interest rates lower for longer," said Jorg Radeke, economist at the Centre for Economic and Business Research.
The prospect that European interest rates will stay low for longer was another reason why the euro plunged — by mid afternoon London time, the euro was down 0.8 percent on the day at $1.3778, its lowest level since mid-June 2009.
ECU Group's Mackinnon said the focus on the debt crisis in Europe was unlikely to be assuaged even by a better than anticipated U.S. nonfarm payrolls report on Friday. The jobs data often set the stock market tone for a week or two.
Earlier, Asian stocks retreated in the wake of Wall Street's decline Wednesday.
Japan's Nikkei 225 stock average fell 48.35 points, or 0.5 percent, to 10,355.98 with Toyota continuing to drag on the market as the world's largest automaker grappled with a global recall.
It closed down 3.5 percent before announcing after the bell it returned to profit last quarter and had raised its annual earnings forecast. The results, however, didn't reflect damage from the massive recalls linked to faulty gas pedals
Elsewhere, Hong Kong's Hang Seng tumbled 1.8 percent to 20,341.64 and Shanghai's main index fell 0.3 percent. Down most of the day, South Korea's market recovered to add 0.1 percent.
Oil prices plunged too, with benchmark crude for March delivery off $1.85 at $75.13, while gold fell $28.60 an ounce, or 2.6 percent, to $1.082.80.
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