European stocks slide as eurozone debt spreads turmoil

LONDON—European stocks slid on Tuesday on doubts about reforms to contain new eurozone debt pressures amid street protests, pushing the price of safe-haven gold to a new record.

Another safe-haven instrument, the Swiss franc, has also surged and on Tuesday the Swiss central bank sprang a surprise, setting a target “peg” exchange rate against the euro.

“Markets are in a dangerous phase with the eurozone debt and banking crisis bringing back memories of (the financial crisis in) 2008 at a time now when there are concerns about the health of the global economy,” said VTB Capital economist Neil MacKinnon.

“Flight to safety themes are dominant in this environment.”

Greece raised short term funds at reduced rates, but Greece and also Italy are at the centre of renewed tension over the eurozone debt crisis.

Demonstrators were taking to the streets in Italy and Spain to protest against deep crisis cutbacks in public spending.

European stocks staged a moderate comeback in the morning after slumping by about 4 percent on Monday, but began to slide in the afternoon.

US stocks plummeted in opening trade as investors returned from a long holiday weekend worried about European debt problems and the health of the US economy.

Extending Friday’s sharp losses, the Dow Jones Industrial Average slumped 2 percent to 11,015.63 points in the first minute of trading.

The S&P 500-stock index, a broader measure of the markets, slid 2.09 percent to 1,149.48 points, while the tech-rich Nasdaq Composite tumbled 2.40 percent to 2,420.69 points.

Shortly after Wall Street opened the London’s benchmark FTSE 100 stocks index was down 0.18 percent to 5,102.58 points but later it showed a slight gain.

Frankfurt’s DAX 30 index was down 1.35 percent to 5,175.32 points and in Paris the CAC 40 slid 1.04 percent to 2,968.46 points.

Milan was down 3 percent and Madrid 2.3 percent.

“The deteriorating fiscal situation in Europe continues to spook investors, with continued political discord amongst EU leaders making the likelihood of a quick solution pretty nigh on impossible,” said CMC Markets, analyst Michael Hewson.

The euro slid to $1.4049 around 1300 GMT from $1.4098 in London late on Monday. The dollar gained to 77.30 yen from 76.89 yen on Monday.

Tokyo’s stock market slumped to a two-year low point and most other Asian markets tumbled, extending Monday’s losses caused also by a dismal batch of US jobs data last week that raised concerns of a double-dip recession in the US economy, the biggest in the world and a key market for exports from Asia.

The Eurozone, meanwhile, reported on Tuesday shrinking 0.2-percent growth in the second quarter of 2011, dragged down by a rapid decline in German performance and a stagnant France economy.

Gold, seen as a safe bet in times of economic uncertainty, jumped on Tuesday to a record high price above $1,921 an ounce on the London Bullion Market.

The Swiss National Bank, meanwhile, set a minimum exchange rate of 1.20 francs per euro, saying the current value of the safe haven Swiss currency was a threat to the economy.

The Swiss franc has risen strongly in response to the eurozone debt crisis, hitting Swiss exporters and the tourism industry hard. The franc dropped by about 9.0 percent in response to the announcement, and Swiss shares rallied by more than 3.0 percent in afternoon trade.

Adding to strains in the European Union was news at the end of last week that the European Union and International Monetary Fund had left a critical audit of Greek finances unfinished saying more budget work was needed, while Athens admitted its deficit target was in trouble.