Italy Fears Rattle Europe's Markets by David Cottle 7/12/2011 WSJ (SPX500 futures at 1306 at moment of this post-max)
LONDON—The euro was hammered again Tuesday, while peripheral bond spreads widened and stocks tumbled, as investors' fears about the euro-zone debt crisis spreading to Italy deepened and a meeting of European Union finance ministers failed to come up with a definite rescue plan.
Italian bank shares suffered heavy losses, dragging down the local bourse and financial sectors elsewhere.
The single currency abandoned the $1.40 handle for dead in Asia, sinking to a four-month low of $1.3838 by midmorning in Europe. "The lack of any action from the EU finance ministers yesterday leaves the euro vulnerable," said analysts at Lloyds Bank.
"The worry is that the rising trend in Spanish and Italian [bond] yields would persist, even if a new deal is struck for Greece, as there are concerns about weak growth and the lack of any political will in these economies."
Ten-year bond yields in both countries made euro-era records again Tuesday.
The difference investors demanded to hold Italian 10-year bonds rather than benchmark German bunds was 0.42 percentage point wider at 3.45 percentage points, while the yield spread on Spanish bonds widened by 0.36 percentage point to 3.73 percentage points.
Equities also took a pounding. The Stoxx Europe 600 index fell 2.4% to 263.40. London's FTSE 100 slumped 2% to 5808.94, Frankfurt's DAX shed 2.7% to 7032.20 and Paris's CAC-40 slid 2.4% to 3717.45.
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Within the troubled euro-zone periphery, Italy's benchmark FTSE MIB index lost 4.4%, while Greece's ASE index fell 3.8%. Spain's IBEX 35 was down 3.0%, while Portugal's PSI 20 index shed 3.2%.
Moreover, shares in Italian banks continued their slide. Investors fled the sector on growing concern that Europe's debt crisis will infect the euro-zone's third-largest economy, raising the specter of a debt crisis a whole new magnitude greater than any debt crisis it has faced before. Italy's economy dwarfs that of Ireland, Greece and Portugal, at two-thirds the size of Germany's.
Greece's Finance Minister Evangelos Venizelos, right, talks with his Italian counterpart Giulio Tremonti at a meeting in Brussels on Monday.
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The Dow tumbled 151 points Monday, as another round of anxiety over Europe's debt crisis spurred investors to flee risky assets like stocks. Steve Russolillo has details.
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Unsurprisingly, the weakness in Italian banking was reflected in financial shares across the continent.
UniCredit SpA shares were suspended limit down, after shedding 7.1% at €1.07, while Intesa Sanpaolo SpA shed 4.7% at €1.46 and Banca Monte dei Paschi SpA lost 2% at €0.48. UniCredit, Intesa Sanpaolo and Monte Paschi are Italy's three largest banks by market value.
"Risk assets have suffered as markets responded to the expansion of the European debt crisis to Spain and Italy (the latter in particular)," said analysts at the Royal Bank of Scotland.
"Most concerning is not only the speed at which the fire is spreading of late, but also the inability for the markets to identify who the fireman is (never mind if there is enough water in the hose)."
Write to David Cottle at david.cottle@dowjones.com |
