European stocks, euro slump before Greece crisis talks

LONDON: European stocks slumped and the euro fell sharply against the dollar on Monday on raised fears of another global financial crisis as Greece went into talks to secure critical rescue loans.

Trader sentiment soured on the inability of European finance ministers to put aside differences at a weekend meeting in Poland that delayed a decision on blocked loans for Greece and highlighted divisions between Europe and the United States over the best way forward for the eurozone.

In afternoon deals, London's FTSE 100 index tumbled 2.27 percent to 5,246.37 points, Frankfurt's DAX 30 dived 3.34 percent to 5,387.39 points and in Paris the CAC 40 retreated 3.29 percent to 2,931.23 points.

Madrid shed 2.08 percent, Milan 3.31 percent and Zurich 1.59 percent.

Banking shares were the biggest losers on worries over lenders' large exposure to Greek debt. In Paris, Societe Generale was down almost six percent and BNP Paribas shed nearly five percent.

At opening, Wall Street also fell with the Dow Jones Industrial Average down 1.49 percent to 11,337.36 in the first five minutes of trade.

The broader S&P 500 dropped 1.68 percent to 1,195.63, while the tech-heavy Nasdaq Composite fell 1.57 percent to 2,581.19.

In afternoon trades, the euro dropped to $1.3633 from $1.3797 late in New York on Friday. Last week the euro fell before the $1.36 mark for the first time since February.

The falls come as markets increasingly expect Greece to eventually default on its debt mountain under an aggressive domestic austerity drive, especially after European finance heads failed to agree a plan to solve the eurozone situation.

"The financial markets had, naively it would appear, held out hope that there would have been some policy steps taken to help support declining investor confidence over concerns over a Greek default," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ.

"We got nothing of the sort. Indeed, it was more of the opposite with nothing but delays agreed."

Asian stock markets meanwhile closed sharply lower, with Hong Kong tumbling 2.76 percent. Tokyo was shut for a Japanese public holiday.

Greece's finance minister was set to once again lay his case to eurozone and IMF officials in a late afternoon conference call that Athens would meet all conditions for urgently needed rescue funds.

Greek media are reporting that following Monday's talks, the Athens government will likely announce new austerity measures worth about 4.0 billion euros ($5.5 billion).

"For most market participants it is not a question of 'if' Greece will default but rather 'when' and 'how'," said Rabobank analyst Jane Foley.

"An orderly and managed default would clearly have a less damaging impact than a messy one. The latter clearly has the potential to send shockwaves throughout Europe's banking system," she said.

On Friday, eurozone finance ministers said they would delay until October a decision on eight billion euros of bailout loans for Greece, which it cannot tap until it has persuaded auditors it is on track to cut its deficit.

Attention this week is also on the Federal Open Market Committee, the key policy body of the US Federal Reserve, to see whether it takes action to boost the ailing economy.

Due to internal divisions, the FOMC is unlikely to take the drastic step of launching a third round of quantitative easing -- effectively printing dollars to inject liquidity into the economy -- but might take less contentious steps.

Sentiment on Wall Street was also under pressure ahead of US President Barack Obama's release of a deficit-reduction plan expected to be staunchly opposed by Republicans.

Copyright AFP (Agence France-Presse), 2011