Investors worried by lower German growth figures

MARKETS:STOCK MARKETS across Europe fell yesterday as investors reacted to lower than expected economic growth figures in Germany and the EU.

Markets also anxiously awaited the outcome of the France-German meeting when President Nicholas Sarkozy and Chancellor Angela Merkel reiterated their opposition to issuing eurobonds to help the European sovereign debt crisis. Instead they proposed common governance for the euro zone.

The Stoxx Europe 600 index ended its three-day rally, falling by 0.1 per cent to close down at 237.56.

In London the FTSE 100 advanced by just 0.1 per cent, while the CAC 40 slid by 0.3 per cent in Paris and Germany’s DAX gave up 0.5 per cent. RWE, Germany’s second largest utility, dropped 2.7 per cent, while ThyssenKrupp and Salzgitter declined with metal prices.

In Dublin the Iseq was largely flat on a quiet day of trading, losing 11.78 points or 0.46 per cent to close on 2,537.46. CRH advanced by 1.1 per cent on the back of better than expected results.

In the US better than expected industrial output numbers for July helped lift the market. Moreover, ratings agency Fitch also affirmed its top credit rating for the US economy.

However, markets fell back again following proposals on the euro zone. By 12.30pm the Dow Jones was down 45.22 points, or 0.39 per cent, at 11,437.68, while the SP 500 was down by 6.47 points, or 0.54 per cent, at 1,198.02. The Nasdaq was down by 19.27 points, or 0.75 per cent, at 2,535.93.

On the bond markets there was speculation yesterday that the European Central Bank has continued buying Italian and Spanish bonds to stabilise their yields. Last week it spent €22 billion in just two days buying bonds.

As a result the spread on Italian 10-year bonds compared to German 10-years narrowed to the least since July 25th, while the Spanish spread also narrowed.

Yields on Italian 10-year bonds were down by three basis points to 5 per cent by 4.20pm yesterday, while Spanish 10-year bond yields fell by two basis points to 4.98 per cent. Moreover, Spain sold €5.7 billion in treasury bills yesterday, its biggest sale since February.

Yields on 10-year Irish government bonds remained below 10 per cent yesterday.

The euro climbed as high as $1.44730 yesterday, before falling back to trade at $1.4428, down by 0.1 per cent on the day.

The euro also rose more than 1 per cent to a session peak versus the Swiss franc at 1.14850. The euro fell by 0.2 per cent against the yen, while the dollar slipped 0.1 per cent to 76.72 yen, from 76.83 yen. – (Additional reporting Bloomberg/Reuters)