Stocks slide on doubts over euro deal

Eurostoxx 50:2,276.01 (-2.84%) Frankfurt DAX:5,804.70 (-3.04%) Paris CAC:3,099.29 (-2.30%)

THE EUROPEAN summit deal to strengthen budget discipline in the euro zone failed to restore financial market confidence yesterday, forcing the European Central Bank to step in again gingerly to shore up sovereign bonds.

The euro fell, stocks slid and borrowing costs for Italy and Spain rose, despite Italy attracting higher demand for its bonds at auction compared to an auction a month ago. The euro declined as much as 1.3 per cent to a two-month low of $1.3209.

Friday’s initial market rally petered out in less than 24 trading hours due to legal uncertainty surrounding the new pact and the absence of an unlimited financial backstop for the single currency.

DUBLIN

Ireland’s Iseq index replicated the global market trends, finishing down 25.65 points at 2,715.64.

The Irish Stock Exchange yesterday announced that the scrutiny of prospectuses, which the stock exchange had undertaken on behalf of the Central Bank since 2005, has been transferred back to in line with EU legislation.

CRH, which will be listed on the FTSE 100 index in London on Friday, was one of the actively traded stocks yesterday finishing down just over 1 per cent, following the announcement that peer company Martin Marietta Materials is seeking a hostile takeover of Vulcan Materials.

The all-stock transaction, valued at $4.7 billion, would create the world’s largest aggregates supplier. The offer of 0.5 Martin Marietta share for each Vulcan share is being made directly to investors.

Elsewhere, Smurfit Kappa lost ground, closing down 7 per cent. According to traders this was due to risk-off trade trends, which saw a sell-off in cyclical stocks.

Kerry Foods which saw its weighting in the index increase to more than 10 per cent following the Irish Stock Exchange’s revaluation of free-float data, was actively traded, though it finished off fractionally at €28.08. The new data will take effect next Monday. Kerry Group’s free float will increase from 76.92 per cent to 82.61 per cent due to the recent reduction in Kerry Co-operative;s holding.

Bank of Ireland’s free float has reduced from 57.9 per cent to 49.9 per cent. Yesterday, the stock closed off 6.5 per cent at €0.087.

LONDON

In London, the big news of the day was the announcement by London Stock Exchange, itself a plc, that it is to buy the 50 per cent of FTSE International it doesn’t already own from Pearson Plc for £450 million in cash as it seeks to expand in derivatives. The acquisition of FTSE International, which publishes the UK’s benchmark FTSE 100 Index and more than 200,000 other gauges, is expected to be completed in the first quarter of 2012.

LSE trails NYSE Euronext and Deutsche Boerse AG in derivatives and is trying to expand its offering of futures and options contracts on companies and indexes across Europe.

EUROPE

The benchmark Stoxx Europe 600 Index lost 1.7 per cent to 236.39 yesterday evening, extending this years decline to 14 per cent.

National benchmark indexes retreated in all 18 western European markets. France’s CAC slid 2.3 per cent, the UKs FTSE 100 fell 1.5 per cent, while Germany’s DAX lost 3 per cent.

Italian and Spanish bonds led declines in Europe’s higher-yielding sovereign debt after Moody’s said measures agreed at last week’s leaders’ summit don’t go far enough to stem the crisis.

German and Dutch two-year yields fell to euro-era records as investors sought safer assets after Bundesbank president Jens Weidmann said the onus is on governments rather than the European Central Bank to resolve the crisis. Italy’s two-year notes erased losses as the ECB bought Italian debt while borrowing costs declined at a sale of one-year

Treasuries advanced and the euro weakened. Italian 10-year yields climbed 18 basis points to 6.54 per cent yesterday evening in London.

Two-year note yields dropped two basis points to 5.93 per cent, after gaining as much as 53 basis points. Spanish 10-year rates rose four basis points to 5.78 per cent, after earlier climbing above 6 per cent for the first time since December 1st.

Ten-year German yields fell 11 basis points to 2.04 per cent. The two-year rate dropped six basis points to 0.265 per cent, after declining to a record 0.258 per cent.

“There’s an element of flight to quality in the market,” said Marc Ostwald, a fixed-income strategist at Monument Securities in London.

German bunds gained for the fourth time in five days as Weidmann damped speculation the ECB will extend its role to help end the debt crisis.

US

US stocks also fell yesterday, reflecting lingering concerns about Friday’s EU deal. The market also dipped as Intel cut its fourth-quarter revenue expectations. – (Additional Reporting: Bloomberg)