World stocks fall sharply amid renewed Europe debt worries as euro continues slide

By Alex Kennedy, AP
Wednesday, May 26, 2010

World stocks sink on renewed Europe fears

SINGAPORE — World stock markets tumbled Tuesday, extending Wall Street’s sell-off as the sliding euro fueled a new wave of pessimism about the global economy’s health.

Renewed worries about Europe’s debt problems rattled already anxious investors, who grew more uncertain about the outlook for the U.S. and global economies.

In early trading in Europe, Britain’s FTSE 100 fell 2.3 percent, Germany’s DAX dropped 2.6 percent, and France’s CAC-40 sank 3.1 percent. Futures pointed to losses of 2 percent or more for major U.S. stock indexes on Tuesday.

Earlier in Asia, Japan’s Nikkei 225 stock average shed 3.1 percent to 9,459.89 as the yen’s strength against the common European currency hammered exporters.

Hong Kong’s Hang Seng index slid 3.5 percent to 18,985.50 while benchmarks in Australia, Indonesia, Thailand, Taiwan and Malaysia lost 3 percent or more. Stock markets in India and Singapore were down more than 2 percent while China dropped 1.9 percent.

The weekend rescue of a small Spanish bank exacerbated investor pessimism about Europe’s financial health. The Bank of Spain stepped in to rescue Cajasur after it failed to complete a merger. It was only the second time Spain’s central bank had saved a regional lender.

The euro’s weakness also unnerved markets. Traders have been dumping the 16-nation currency on fears that massive debts will cause defaults by weaker countries in the European Union.

Still, some investors consider Asian stocks oversold given the region’s strong economic growth and low government debt.

“I think it’s a great time to buy on dips,” said Tey Tze Ming, a trader with Saxo Capital Markets in Singapore. “Fundamentally, things in this region haven’t changed. Growth is still good.”

South Korean financial markets fell sharply after reports that North Korean leader Kim Jong Il ordered his military to be on combat alert amid rising tensions on the peninsula.

South Korea’s benchmark stock index dropped as much as 4.5 percent before recovering some to finish 2.8 percent down at 1,560.83 — its lowest close in more than three months. The South Korean won, meanwhile, slid to its weakest level against the dollar in more than 10 months before paring some losses to finish at 1,250 to the greenback.

“The main reason is the risk of war with North Korea,” Kim Joong-hyun, a strategist at Shinhan Investment Corp. in Seoul, said of the declines, though he added that concern over Europe’s debt crisis was also a factor.

A group in South Korea that monitors events in North Korea said Tuesday that Kim Jong Il last week ordered the military to get ready for combat, shortly after South Korea officially blamed his regime for the March 26 sinking of one of its warships that killed 46 sailors.

South Korean officials and other North Korea monitoring groups could not immediately confirm the report by Seoul-based North Korea Intellectuals Solidarity, which cited unidentified sources in North Korea. The Defense Ministry and the Joint Chiefs of Staff said they have not obtained any signs suggesting unusual activity by North Korea’s military.

The Bank of Korea, South Korea’s central bank, said it would hold a special task force meeting Tuesday to discuss the currency turmoil, according to spokesman Kim Seong.

In New York on Monday, the Dow fell 126.82, or 1.2 percent, to 10,066.57. The S&P 500 index fell 14.04, or 1.3 percent, to 1,073.65, and the Nasdaq composite index fell 15.49, or 0.7 percent, to 2,213.55.

Crude oil for July delivery fell $1.89 to $68.33 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the dollar slipped to 89.81 yen from 90.22 yen late Monday. The euro sank to $1.2236 from $1.2342.


AP Business Writer Kelly Olsen in Seoul contributed to this report.

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