European stock markets shed earlier gains Monday as ongoing concerns about the continent's debt crisis continued to keep any positive sentiment at bay, while Wall Street traded lower following a very weak manufacturing survey.
In Europe, the FTSE 100 index of leading British shares closed down less than a point at 5,262.54 while France's CAC-40 ended 16.81 points, or 0.5 percent, lower at 3,543.55. Germany's DAX rose however, closing up 10.21 points, or 0.2 percent, at 6,066.92.
All three indexes had traded solidly higher but a retreat on Wall Street prompted already nervous investors to book their gains — the Dow Jones industrial average was down 73.16 points, or 0.7 percent, at 10,547 around New York time while the broader Standard & Poor's 500 index fell 8.39 points, or 0.7 percent, at 1,127.45.
Most attention continued to center on the European debt crisis as investors fretted that efforts to cut deficits and debt will kill growth by withdrawing government stimulus from economies in Greece, Spain and Portugal.
Last week's EU-led euro750 billion rescue package may have eased near-term concerns that a eurozone country will default on its debt but has done little to assuage worries that the fiscal stringency being planned will work. In an interview with German newspaper Der Spiegel, European Central Bank President Jean-Claude Trichet said Europe's economy "is in its most difficult situation since World War II or perhaps even since World War I."
The biggest casualty over the last week from the eurozone debt crisis has been the euro, which was down 0.1 percent on the day at $1.2334. Earlier it had fallen to $1.2237, its lowest level since April 2006 and down from $1.51 late last year.
"European debt is still the topic of concern for markets at the moment — although this has played out in foreign exchange markets today rather than equities," said Yusuf Heusen, a senior sales trader at IG Index.
"But worries about just how big a problem this could continue to be and how far any possible contagion could reach are serving to keep the lid on any optimism at the moment," he added.
Analysts reckon that the currency will continue to be pressured until such a time as the markets think that cogent budgetary actions are in place for all the highly indebted countries.
Capital Economics analyst John Higgins think that the euro could fall to parity — one dollar per euro — by the middle of next year because of ongoing concerns about the survival of the euro, a better U.S. economic growth profile and expectations of higher U.S. interest rates relative to those expected to prevail in the eurozone.
In a note Monday, Fitch Ratings said investors are deeply skeptical about the ability of governments to get a handle on their huge debt burdens.
"Investors now perceive record government borrowing as the principal risk to market stability and economic recovery," said David Riley, a managing director at Fitch.
Fitch estimates that European governments will need to borrow euro2.2 trillion in 2010 to finance large deficits and roll over existing debt — up marginally on 2009, which was the largest borrowing requirement for decades.
"While the package of measures announced last weekend will moderate euro area governments' vulnerability to 'confidence shocks' and extreme market volatility, investor confidence will remain fragile until European governments, including the UK, are seen to be delivering on fiscal consolidation and the economic recovery is secured," Riley said.
Though the European debt crisis remains the focal point in the markets, U.S. economic figures still have the potential to move markets. That was clear in the reaction to a weak manufacturing survey: futures markets were anticipating a much stronger opening than emerged.
The under performance on Wall Street came after the Empire State manufacturing index, which gauges activity in and around New York, slid to a four-month low of 19.1 in May from 31.9 the month before.
Earlier in Asia, stocks slid as investors responded to the sharp falls in Europe and the U.S. Friday.
Japan's benchmark Nikkei 225 stock average dropped 226.75 points, or 2.2 percent, to 10,235.76, while South Korea's Kospi lost 2.6 percent to 1,651.51 and Australia's S&P/ASX 200 index was down 3.1 percent at 4,467.20.
Hong Kong's Hang Seng index lost 2.1 percent, while Thailand sank 2.1 percent.
Oil prices oscillated all day in line with changes in share prices. Benchmark crude for June delivery was down $1.12 to $70.49 a barrel in electronic trading on the New York Mercantile Exchange. The June contract lost $2.79, almost 4 percent, to settle at $71.61 on Friday.
Associated Press Writer Alex Kennedy in Singapore contributed to this report.
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