European shares reverse early gains and head downwards again

European shares have reversed modest gains today, falling after confidence faded and indices begin to reflect yesterday’s rout.

They had earlier defied volatile trading and lower closes in leading Asian indices overnight, which reflected a growing fear the US, the world’s largest economy, might slip back into recession.

But by 09.45 CET, Germany’s Dax was down 2.5%, the MDax was down 3.1% and Eurostoxx 50 was 1.55% lower. In France, meanwhile, the Cac 40 is 1.3% weaker.

This follows yesterday’s 5% fall for German shares, 4.7% for French counterparts, and a 4.14% drop by the Stoxx Europe 600.

The Dax might be tempered further during the day after the country’s Federal Statistics Office reported a 1.2% month-on-month decline in exports in June. This was a slightly sharper fall than the 1% economists had told Bloomberg they expected, but it followed strong 4.4% monthly growth in May.

Imports rose 0.3% in June, following a 3.8% jump in May.

The Bundesbank expects the German economy to have grown by 3.1% this year and then by 1.8% in 2012. The 3.6% growth it posted in 2010 was a new record.

In early trading today the UK FTSE 100 benchmark was 2.6% lower.

Yesterday it fell 178 points, or 3.4%, the first time in its history it recorded triple digit points falls for four days running.

It had teetered just above the 5,000 points mark overnight, at 5,068.95, and has now crossed that threshhold to 4,937.25.

The falls across Europe came despite the European Central Bank’s efforts to calm markets by reportedly buying up Italian and Spanish bonds.

Andrew Wells, global CIO for fixed income at Fidelity, said the central buying was a “supportive strategy (which), if continued, is a potential game-changer for eurozone bond markets.

“The initial purchases seem to be a mere notice of intent, and
they barely scrape the surface of the massive firepower ultimately available to the ECB.”

Markets ignored such sentiments yesterday in a global share market rout.

The ECB has also spent money buying Greece’s sovereign debt, but as its markets plunged yesterday the regulator prohibited betting on further falls, marking the third time a short selling ban has been invoked for Greek equities since the first financial crisis in 2008.

America’s Dow Jones Industrial Average fell 5.55%, the S&P 500 plunged 6.66%, outdone by the Nasdaq which shed 6.9% of its value.

It was the S&P 500’s worst drop since December 2008, as every stock fell.
The Dow’s drop was also its biggest one-day decline, in points terms, since the height of the last financial crisis, in October 2008.

Even hard talk by President Barack Obama that his nation would “always be an AAA country”, no matter what credit agencies say, failed to halt the selling.

Amid fear the US was headed back to recession the Vix volatility index, a proxy of sorts for investor nervousness, spiked 50% to reach 48, its sharpest jump since February 2007.

Asia then took off overnight where the US ended, with the Nikkei 225 falling by up to 2.8% during trading, to close 1.7% lower. South Korea’s Kospi index dropped 3.6%, having traded up to 5.3% lower, while Hong Kong’s Hang Seng lost 6% of its value.


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