Markets downbeat on prospects of euro breakthrough

Associated Press
People walk by an electronic stock board of a securities firm in Tokyo, Thursday, June 28, 2012. Good news about the U.S. economy helped Asian stock markets rise Thursday, although lingering fears about Europe's ability to tame its debt turmoil kept gains in check.   (AP Photo/Koji Sasahara)

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LONDON (AP) — Doubts over the ability of European leaders to cobble together measures to deal with the continent's debt crisis caused stocks and the euro to fall Thursday.

In the run-up to the summit, there had been hopes that Europe's leaders would finally deliver on a comprehensive package of measures to get a grip on the crisis that is well into its third year.

However, German Chancellor Angela Merkel's resolute opposition to the idea of jointly-issued eurobonds has put paid to those hopes. Many in the markets as well as a number of Europe's leaders, including those from France, Italy and Spain, think eurobonds are a key ingredient in the resolution of the crisis as they would help lower indebted countries' borrowing costs.

But Merkel is reluctant to expose Germany to new potential costs and is concerned that such bonds would ease the pressure on countries like Greece and Spain to reform their economies.

"18 such previous summits have had no discernible effect on the crisis, being full of sound (and the occasional bit of fury) but ultimately signifying little," said Chris Beauchamp, market analyst at IG Index.

In Europe, Germany's DAX was 1.5 percent lower at 6,138 while the CAC-40 in France fell 0.7 percent to 3,043. The FTSE 100 index of leading British shares was 1.2 percent lower at 5,456.

Much of the FTSE's fall can be attributed to the performance of its banks, notably Barclays PLC, which dropped over 14 percent a day after it was slapped with fines totaling $453 million for the manipulation of key interest rates.

Wall Street was not able to turn around the market mood, especially after disappointing weekly jobless claims figures. The Dow Jones industrial average was down 1 percent at 12,498 while the broader S&P 500 index fell 0.9 percent to 1,320.

The euro was also being dogged by lack of optimism over the summit and was trading 0.3 percent lower at $1.2435.

Figures showing that German unemployment fell only modestly to 6.6 percent in June — a month that usually sees big demand for seasonal jobs — added to the prevailing sense of unease.

Earlier, a few Asian markets posted gains as they tracked gains in the previous session in Europe and the U.S. following positive housing and manufacturing reports out of the U.S. on Wednesday.

Japan's Nikkei 225 rose 1.7 percent to 8,874.11. South Korea's Kospi rose marginally to 1,819.18 while Hong Kong's Hang Seng gave up earlier gains to fall 0.8 percent to 19,025.27.

Mainland Chinese shares lost ground, with the benchmark Shanghai Composite Index down 1 percent to 2,195.84, the lowest closing in almost five months. The Shenzhen Composite Index lost 1 percent to 909.28.

Oil prices fell below the $80 a barrel mark as sentiment in the markets turned sour. Benchmark oil for August delivery dipped 52 cents at $79.66 a barrel in electronic trading on the New York Mercantile Exchange.


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Pamela Sampson in Bangkok contributed to this report.

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