Shares plunge across Europe

MARKETS:EUROPEAN SHARES plunged yesterday and the euro touched a one-year low amid concern that Greece's debt crisis will spread through the region.

National benchmark indices fell in all of the western European markets, with the periphery countries worst hit. Spain’s Ibex index lost 5.4 per cent and Italy’s FTSE Mib index dropped 4.7 per cent, while in Ireland, the Iseq fell 4.5 per cent.

According to Kevin McConnell, head of research at Bloxham stockbrokers, these falls reflected “nervousness towards the periphery economies” arising from the way in which the Greek debt crisis was unfolding.

Since Monday, April 26th, the Irish market has fallen 5.3 per cent, while the wider European market, as measured by the Euro Stoxx 50 index, is off about 7 per cent. By comparison, US markets are down about 3 per cent. The Greek crisis has also led to the “severe weakening” of the euro in recent days, Mr McConnell said.

The euro has lost about 1 per cent of its value against the dollar over the past week and traded below $1.31 yesterday for the first time since April 2009 over concerns that the €110 billion rescue package for Greece will fail.

According to Ciarán O’Hagan, a fixed income strategist at Société Générale, European bond markets actually enjoyed a “big rally” on Monday, but this was followed by a sell-off yesterday as “the market remained sceptical of the Greek aid plan and the problems for other countries after Greece”.

Irish bond spreads, which had moved down as far as 140 basis points above the German bund about six to eight weeks ago, have begun widening out again and hit 240 yesterday, according to Mr McConnell.

“Most of the increase has come through in the last week,” he said.

One broker said: “Investors don’t like uncertainty and took some money off the table.” There was a bit of a buyers’ strike, he added, with the result that markets fell. “We’re in for a period of volatility. It’s as simple as that.” – (Additional reporting Bloomberg)