European shares tumble

European shares hit their lowest close in six weeks on Thursday on concerns a debt crisis in the eurozone could spiral out of control after Spain and France paid a higher price at their debt auctions. The FTSEurofirst 300 index of top European shares ended 1.3 percent lower at 957.85.
Banking stocks underperformed, with the sector gauge, down 2.2 percent, declining for a fourth session on the trot to close at levels not seen since October 4, while the basic resources index also bore the brunt of the depressed sentiment as it dropped 3.2 percent. Shares fell after Spain and France saw their borrowing costs rise at bond auctions earlier in the day, reflecting increased uneasiness about the countries' public finances and dissatisfaction at the policy response from the authorities.
"The market is still worried about the implementation of all these (austerity and anti-crisis) measures, which are not detailed enough to be credible," J.P. Morgan-Cazenove strategist Emmanuel Cau said. "If you don't have enough political commitment the only backstop available is the ECB."
Analysts are calling for the eurozone's central bank, which intervened on the secondary bond market today to contain a rise in sovereign bond yields, to launch a quantitative easing programme to ease pressure on sovereigns and banks, and avert the risk of a credit crunch.
"What the market is waiting for is the ECB assume the role of buyer of last resort, giving an amount of bonds it targets to purchase over a certain period of time," said J.P. Morgan's Cau. His comments came after Fitch Ratings warned yesterday that it might reduce its "stable" credit rating outlook for US banks because of contagion from Europe's woes.
The news re-ignited fears counter-party risk among banks is on the rise at a time when they are forced to deleverage in order to meet tighter capital requirements, sparking fears of a new credit crunch. "When this syndrome of financial fragility presents, the only balance sheet adequate to absorb the orphaned assets is the central bank's," Credit Suisse said in a note. "The bottom line is that quantitative easing is probably a necessary component of managing the ongoing restructuring of the global financial system."