European stocks slip amid concernts about Austrian banks; euro down at 2-1/2 month dollar low

European stocks, euro slip on Austria bank worries

LONDON — European stocks and fell Tuesday and the euro slid to a two and a half month low against the dollar on worries about the Greek government’s debts and the financial health of Austria’s banks.

The FTSE 100 index of leading British shares was down 39.93 points, or 0.8 percent, at 5,275.41 while Germany’s DAX fell 15.25 points, or 0.3 percent, to 5,787.01. The CAC-40 in France was 9.93 points, or 0.3 percent, lower at 3,820.51.

Alongside the fall in stocks, the euro continued to slide, falling 0.7 percent to $1.4551.

Analysts said worries about Greece and Austria, two of the 16 countries that use the euro, continued to dog the currency as well as stocks.

In Greece, new Prime Minister George Papandreou sought to calm frayed nerves Monday about the shaky state of the country’s public finances by announcing a package of spending cuts as part of a drive to bring borrowing down from over 12 percent of economic output to under 3 percent by 2013.

“Whether or not a debt crisis can be avoided in Greece remains to be seen, but the whole affair has once more raised questions about the political and structural mechanisms of the eurozone,” said Neil Mellor, an analyst at Bank of New York Mellon.

As if Greece’s problems weren’t enough, investors are also beginning to fret about the exposure of Austria’s banks to Eastern Europe, where the recession has been particularly acute.

On Monday, Austria nationalized Hypo Alpe Adria, a unit of German public-sector bank BayernLB — the move was designed to prevent the bank from sliding into a bankruptcy fueled in part by bad loans, much of them in Eastern Europe.

There’s also been talk Tuesday that other banks may face a similar fate having notched big losses too.

Austria’s Die Presse newspaper said the country’s three banking supervisory bodies have put OeVAG, the country’s fourth largest bank, under surveillance.

“Just as fears about Dubai fade somewhat, the last thing the market needs is to find a fresh source of worry in the European banking system,” said Kit Juckes, chief economist at ECU Group. Worries last month over state-owned Dubai World’s ability to pay its debts caused jitters about government finances generally, but Dubai’s troubles appear to have eased with a $10 billion bailout from Abu Dhabi.

“These banks are not of themselves a huge threat to Austria’s finances but there will naturally be fears about the wider potential for Eastern European losses among European banks and this will just add to concerns about the final extent of the bailout burden for European countries,” he added.

Elsewhere, investors will be watching closely what the U.S. Federal Reserve says after its rate-setting meeting Wednesday to see if the accompanying statement is slightly more hawkish than before following a string of better than expected U.S. economic data, particularly related to jobs.

Investors are also fully aware that gains could well peter out as this is the last full trading week of 2009 and investors may use the opportunity to bolster their portfolios by locking in gains made over the last nine months.

After a big run since March, the markets have drifted this month. Many investors are unwilling to increase their bets toward the end of the year, with lingering uncertainty surrounding debt problems in Dubai and other governments only adding to their caution.

Earlier in Asia, Japan’s Nikkei 225 stock average fell 22.20 points, or 0.2 percent, to 10,083.48 and Hong Kong’s Hang Seng retreated 271.83, or 1.2 percent, to 21,813.92.

China’s main index fell 0.9 percent amid news the government was vowing to clamp down on surging property prices. South Korea’s Kospi was marginally in the green — rising 0.1 percent to 1,665.85 — after flitting in and out of negative territory. However, Australia’s benchmark added 0.4 percent.

Wall Street is also poised to open lower later — Dow futures were down 27 points, or 0.3 percent, at 10,410 while the broader Standard & Poor’s 500 futures fell 3.2 points, or 0.3 percent, to 1,105.40.

On Tuesday, U.S. stocks were fairly lackluster with the Dow Jones industrial average closing up only 0.3 percent at 10,501.05, albeit its highest close since Oct. 1, 2008.

Meanwhile, the S&P 500 0.7 percent, to 1,114.11, its highest finish since Oct. 2, 2008.

Oil prices fell, with benchmark crude for January delivery down 9 cents to $69.42 a barrel, while an ounce of gold slipped 0.7 percent to $1,115.90.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.