European stocks hit by ash cloud fears

LONDON: Europe's main stock markets fell sharply on Monday as shares in airlines dived on fears that a new ash cloud from an Icelandic volcano could ground flights, while debt concerns also weighed.

London's benchmark FTSE 100 index slid 1.51 percent to stand at 5,858.45 points in midday trade.

Frankfurt's DAX 30 shed 1.67 percent to 7,145.98 points and in Paris the CAC 40 index tumbled 1.84 percent to 3,937.24.

The Stoxx 50 index of leading eurozone companies dived 1.75 percent to 2,804.10 points.

Airline shares tumbled at the threat to traffic from an Icelandic volcanic ash cloud closing the skies over Europe, a year after European airlines were hit by month-long similar chaos.

In Monday trade, shares in German airline Lufthansa plunged by 4.11 percent, Air France-KLM stock was down 3.83 percent and International Airline Group (IAG), the owner of British Airways and Iberia, lost by 3.68 percent.

Scandinavian airline SAS dropped 4.02 percent and Finnair fell 3.32 percent.

Iceland's Grimsvoetn volcano began erupting late on Saturday. Ash from the eruption is expected to reach Scotland on Tuesday, and might reach France and Spain on Thursday.

In April 2010 Iceland's Eyjafjoell volcano erupted, spewing a massive cloud of ash that caused the planet's biggest airspace shutdown since World War II with more than 100,000 flights cancelled and eight million passengers stranded.

Traders were meanwhile also spooked on Monday by a downgrade of Greece's credit rating and fears over how the eurozone can dig itself out of its debt hole, and by data suggesting slowdowns in the eurozone and Chinese economies.

In late European trade on Friday, ratings company Fitch slashed Greece's rating by three notches to B+, citing its growing problems in getting its public finances in order.

On Monday, rising concerns emerged over the state of European economic recovery -- with key indicators slowing sharply, and eurozone stragglers behind Germany and France showing signs of stagnation.

London-based research giant Markit's composite eurozone index for manufacturing and services output suggested eurozone growth slowed to a seven-month low in May.

Separate figures showed Chinese manufacturing eased to a 10-month low in May, fuelling fears of a slowdown in the worlds number two economy and sending Shanghai and Hong Kong shares down.

The HSBC China Purchasing Managers Index (PMI) slipped to 51.1 last month -- the lowest since July 2010 -- from a final reading of 51.8 in April, the bank said in a statement.

A reading above 50 indicates the sector is expanding while a reading below 50 indicates contraction.

Although the figures suggest production is still growing, they follow a number of measures by Beijing aimed at taming the economy and reining in soaring inflation, including several interest rate hikes.

Copyright AFP (Agence France-Presse), 2011