European shares fall amid concerns debt-crisis agreement some way off

STOCK MARKETS across Europe fell back yesterday, amid fears that an agreement among European leaders to resolve the debt crisis remains some way off.

Markets fell across 16 of the 18 western European markets, with the Irish market out-performing on the downside. It ended the day almost flat, while in London, the FTSE 100 dropped by 1.2 per cent, in Paris the CAC 40 slipped by 2.3 per cent, while in Frankfurt the DAX was off by 2.5 per cent. The benchmark Stoxx Europe 600 Index slid 1.5 per cent to 233.07.

Ahead of Sunday’s European Summit, there was speculation that Germany might move to post-pone the meeting, following a failure to agree on a solution at an impromptu meeting on Wednesday evening attended by French president Nicolas Sarkozy,German chancellor Angela Merkel, ECB president Jean-Claude Trichet and International Monetary Fund director Christine Lagarde.

Some market sources assert that while Europe is getting closer to a solution, it may not emerge this weekend. It has been suggested that an agreement might see the European Financial Stability Fund being considerably enlarged, with the ability to offer loans to countries before they face difficulties in raising funds.

“Even with the current problems in the negotiations, we expect that there will be at the end a compromise,” economists including Juergen Michels at Citigroup in London said yesterday.

However ahead of an agreement, rumour and innuendo surrounding Sunday’s summit saw yields widen across the peripheral bond markets.

In Spain, the yield on 10-year bonds rose by 13 basis points to 5.53 per cent, as it sold €3.91 billion in 10-year bonds and notes in an auction that was deemed to be “not encouraging” by analysts.

Italian 10-year bonds rose to more than 6 per cent for the first time since early August.

With France’s triple-A credit rating under pressure, it sold €4.26 billion in two- and five-year notes, but attracted less interest than a similar auction in mid-September. And, although France’s 10-year yield was four basis points lower at 3.17 per cent yesterday, the German bund yield also fell by five basis points to 2.01 per cent, sending the spread, or difference, between the two yields, to the most since 1992.

Elsewhere, crude oil also fell yesterday, down by 2.2 per cent to $84.26 a barrel in New York at lunch time, while the price of gold fell for a fourth consecutive day.

In the US, the Standard Poor’s 500 was down by 0.8 per cent at lunch-time.

The euro weakened 0.6 per cent to $1.3673 and the Swiss franc strengthened versus all 16 major peers. – (Additional reporting: Bloomberg, Reuters)