Markets falter as focus remains on Spain

Associated Press
FILE - In this Thursday, Sept. 20, 2012, file photo, traders check the prices to begin trading on the floor of the New York Stock Exchange. Stocks notched their first gain of the week Thursday, Sept. 27, 2012,  after Spain announced severe budget cuts intended to convince the world that it can meet deficit-reduction targets. It was the best day for the U.S. market since Sept. 13, when Federal Reserve Chairman Ben Bernanke announced further steps by the central bank to speed the economic recovery. (AP Photo/Richard Drew, File)
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FILE - In this Thursday, Sept. 20, 2012, file photo, traders check the prices to begin trading on the floor of the New York Stock Exchange. Stocks notched their first gain of the week Thursday, Sept. 27, 2012, after Spain announced severe budget cuts intended to convince the world that it can meet deficit-reduction targets. It was the best day for the U.S. market since Sept. 13, when Federal Reserve Chairman Ben Bernanke announced further steps by the central bank to speed the economic recovery. (AP Photo/Richard Drew, File)

LONDON (AP) — Market trading was volatile Friday — the last working day of the quarter — as investors continued to fret over Spain in the run-up to a report on the state of the country's banks.

Trading is often complicated at the financial quarter's end as it is the deadline for certain trades and agreements to be settled. This sometimes involves buying and selling large amounts of stocks at the last minute in order to make a profit on a deal.

"As the third quarter comes to a close, global equities had generally been on the up-and-up overnight as market approval of Spain's newly unveiled budget measures were outweighing some less-than-positive data releases, but momentum has swiftly shifted in the other direction," said Carl Campus, an analyst at BMO Capital Markets.

Investors remained cautious over Spain, a day after the country's government announced big spending cuts it hopes will convince potential bailout creditors and investors it has a rock-solid plan to heal its public finances.

The positive momentum ground to a halt as investors waited for the results of stress test results into 14 of the country's banks that are due after European markets close. The tests are expected to identify a capital shortfall of around €60 billion ($77 billion).

Rating agency Moody's is also expected to issue an evaluation of Spain's creditworthiness. There are concerns the agency will downgrade Spain's government debt to junk status.

Craig Erlam, markets analyst at Alpari, said a downgrade to junk status could "create some panic" among holders of Spanish debt.

"The positive side to this is this could accelerate the bailout request," Erlam said. The other 16 countries that use the euro and the European Central Bank are prepared to help Spain financially, should it need it, but Madrid has so far put off a request.

Madrid's IBEX index was one of the worst performers in Europe as investors awaited developments. The IBEX was trading 1 percent lower at 7,759.

Elsewhere, Germany's DAX was 0.7 percent lower at 7,243 while the CAC-40 in France fell 1.5 percent to 3,389. The FTSE 100 index of leading British shares was 0.3 percent lower at 5,736.

In the U.S., the Dow Jones industrial average was 0.8 percent lower at 13,381 while the broader S&P 500 index fell 0.7 percent to 1,437.

Other financial markets were fairly subdued, with the euro down 0.1 percent at $1.2900 and a barrel of oil up 12 cents at $91.99.

Earlier in Asia, stocks had been buoyed by speculation that China's central bank will act soon to help the world's No. 2 economy.

Hong Kong's Hang Seng Index rose 0.4 percent to 20,840.38. South Korea's Kospi added nearly 0.4 percent to 1,996.21. But Japan's Nikkei 225 index lost 0.9 percent to 8,870.16, sinking on a government report that showed industrial production fell a further 1.3 percent in August.

Mainland Chinese shares rose ahead of an extended holiday next week. The Shanghai Composite Index gained 1.5 percent to 2,086.17 and the Shenzhen Composite Index rose 1.9 percent to 853.83.

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