World Stocks Fall on Debt Fears, Korean Flareup
World markets and the euro slid Tuesday as investors worried that Ireland’s debt crisis will spread to other fiscally weak European nations and following news that North Korea had fired artillery rounds into South Korean territory, reportedly killing at least two marines.
In Europe, the FTSE 100 index of leading British shares was down 55.82 points, or 1 percent at 5,625.01 while Germany’s DAX fell 52.77 points, or 0.8 percent, to 6,769.28. The CAC-40 in France was 60.06 points, or 1.6 percent, lower at 3,758.83.
Wall Street was also poised to open sharply lower despite encouraging U.S. economic growth figures — Dow futures were down 99 points, or 0.9 percent, at 11,066 while the broader Standard & Poor’s 500 futures fell 12.6 points, or 1.1 percent, at 1,185.30.
Sentiment, already downbeat as Europe’s debt crisis shows few signs of abating, was hit further by the news that North Korea bombarded the South Korean island of Yeonpyeong, near their disputed western border, setting buildings ablaze and killing at least two marines, according to South Korean officials
“As if all of the European sovereign issues weren’t enough, and they are, markets were further roiled as North Korea, with impeccable timing, decided to show its military might,” said Jennifer Lee, an analyst at BMO Financial Group.
Rising geopolitical tensions prompt investors to rein in risky trades, such as stocks, and pile into what are widely considered to be safer harbors for their cash, such as the dollar, the Swiss franc and gold.
Continuing to weigh on sentiment is the fear that Europe’s debt problems have not been solved by the Irish government’s decision to ask for a financial bailout from the European Union and International Monetary Fund.
Experts said the bailout, which is expected to amount to around euro90 billion ($123 billion), has done little to shield other heavily indebted countries from a potential collapse in investor confidence.
Portugal and Spain are considered the next nations most vulnerable to market turmoil after the rescue of Greece and Ireland. Spain is the big worry for EU policymakers because it accounts for around 10 percent of the euro-zone economy, in contrast to Greece, Ireland and Portugal, which account for less than 2 percent each.
“Bailing out weaker partners is fast becoming seen as little more than strapping a band-aid on a gaping flesh wound,” said Andrew Wilkinson, senior market analyst at Interactive Brokers.
Investors are also worried that the activation of the bailout will not be as smooth as hoped, as Ireland’s premier Brian Cowen fights for his future. Lawmakers in his own party have mounted a rebellion to try to oust him, an effort that could trigger a snap election and delay a massive EU-IMF bailout of Ireland.
On Monday, Cowen pledged to call elections early next year if an austerity budget is passed. His announcement was triggered by the decision by the Green Party to withdraw its support for the government, even though it pledged to back the 2011 budget, due to be unveiled on Dec. 7.
These concerns, coupled with the heightened geopolitical tensions, weighed on the euro — by mid afternoon London time, the euro was down 1 percent at $1.3490.
Reports of North Korea’s attack on its neighbor came as Asian trading was drawing to a close. South Korea’s Kospi closed down 0.8 percent at 1,928.94.
Elsewhere, Hong Kong’s Hang Seng index tumbled 2.7 percent to 22,896.14 and China’s Shanghai Composite Index shed 1.9 percent to 2,828.28 with sentiment additionally impacted by mounting expectations Beijing will take more steps to cool inflation that could slow economic growth. Japan’s markets were shut for a national holiday.
Given what’s going on in Europe and Asia, there was little reaction in the markets to the news that the U.S. economy grew by more than previously predicted during the third quarter of the year. The Commerce Department reported that the world’s largest economy grew at an annualized rate of 2.5 percent, up on the previous estimate of 2 percent.
In the oil markets, benchmark crude for January delivery was down $1.36 to $80.38 a barrel in electronic trading on the New York Mercantile Exchange.
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AP Business Writer Kelvin Chan in Hong Kong contributed to this report.
PAN PYLAS, AP Business Writer LONDON