World stock markets slide as Greek debt crisis intensifies

World stocks drop as Greek debt crisis intensifies

LONDON — World markets fell Thursday as investors fretted about Greece’s debt crisis as the country’s borrowing costs continue to go through the roof. The euro, meanwhile, clawed back some ground after European Central Bank president Jean-Claude Trichet tried to downplay market fears of a potential Greek default.

In Europe, the FTSE 100 index of leading British shares closed down 0.9 percent at 5,712.70 while Germany’s DAX fell 0.8 percent at 6,171.83. The CAC-40 in France ended 1.2 percent lower at 3,978.46.

Wall Street also dropped, extending Wednesday’s sizable losses. The Dow Jones industrial average was down 0.2 percent to 10,871.14 around midday New York time, while the Standard & Poor’s 500 index dropped 0.3 percent to 1,179.35.

Sentiment was weakened by a disappointing report on initial jobless claims, which rose unexpectedly last week, jumping 18,000 to a seasonally adjusted 460,000, in contrast to expectations for a drop to 435,000.

However, the main point of interest was the intensifying debt crisis enveloping Greece.

The spread between the Greek and German 2-year bonds swelled by a staggering 1.2 percentage points Thursday as investors demanded more interest to hold Greek debt. The spread between Greek and German 10-year bond yields widened to 4.4 percentage points earlier, its highest level since the euro was introduced in 1999.

At a press conference after the European Central Bank decision to leave the key interest rate unchanged at 1 percent, Trichet faced a barrage of questions from journalists over the viability of a eurozone support plan as well as the prospects for Greece now that markets seem to have lost confidence in any rescue.

Trichet said the support framework outlined in Brussels last month was “workable” and a “very, very serious commitment” by the eurozone governments.

The plan would include bilateral loans from willing eurozone countries and aid from the International Monetary Fund, but it remains unclear at what price the loans would come, what would trigger their issuance, and whether the IMF would require more stringent austerity measures.

The uncertainty has spread from bond markets to stocks, weighing on indexes worldwide. Athens’ main index unsurprisingly was among the hardest-hit, dropping 5 percent.

Analysts feel the ECB chief’s main concern Thursday was to avoid fueling the market’s fears and in one respect it may have worked as the euro clambered up from day lows to trade 0.1 percent higher at $1.3347.

“Generally supportive comments regarding Greece from the ECB’s Trichet do seem to be helping keep euro losses in check,” said Phil Gillett, a sales trader at IG Index.

Trichet confirmed that so-called collateral crisis measures will not be scrapped at the end of this year as originally planned, as he had flagged last month.

That means the Bank will continue to accept lower-rated government bonds as collateral from banks, which will help support demand for Greek bonds.

However, Trichet said there will be changes to the operation of the policy that will likely benefit the most highly rated countries like Germany and France.

Ostensibly, the move was widely considered to be a concession to Greece, whose credit rating has been slashed amid concerns it can’t get a grip on its mountain of debt. However, Trichet confirmed that the lower rated countries will have to pay a premium — or haircut — for continued access to the central bank credit.

After being lower earlier in the day, the euro was up around 0.1 percent at $1.3346 by late afternoon European time.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average fell 1.1 percent to 11,168.20 while Indonesia dropped 1.4 percent, Malaysia slid 0.9 percent and Singapore declined 0.6 percent.

China’s benchmark index in Shanghai fell 0.9 percent and Hong Kong’s index was little changed.

Thailand’s stock market plunged 2.6 percent following the government’s declaration of a state of emergency after anti-government protesters stormed parliament demanding fresh elections.

South Korea’s Kospi index gained 0.4 percent to 1,733.78.

Benchmark crude for May delivery was down 78 cents to $85.10 a barrel.

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Associated Press Writer Alex Kennedy in Singapore contributed to this report.