European equities sank on Tuesday on fears over debt-riddled Spain after its central bank predicted a worsening recession, and on continued US earnings disappointment.
Madrid’s IBEX 35 index of top shares dived 1.80 percent to 7,735.20 points in afternoon deals, as Spanish bond yields crept higher and bailout concerns intensified, dealers said.
London’s FTSE 100 index of top companies fell 1.39 percent to 5,800.88 points, hit by fresh gloom in the retail sector following a profits warning from luxury handbag maker Mulberry.
Frankfurt’s DAX 30 dropped 1.93 percent to 7,186.41 points and in Paris the CAC 40 index was down 1.20 percent at 3,404.37 points.
In foreign exchange trading, the European single currency weakened to $1.2956 from $1.3060 late in New York on Monday. Gold prices slid to $1,717 ounce on the London Bullion Market from $1,726.75.
“Risk-off today, with financial markets across the region under pressure and Spanish 10-year bond yields back on the rise after some worrying noises surrounding Spain and the continued deluge of poor earnings releases from both sides of the Atlantic,” Ishaq Siddiqi of ETX Capital.
US stocks opened more than one percent lower Tuesday after blue chips Dupont, United Technologies and 3M turned in disappointing quarterly earnings and cut their forecasts.
Five minutes into trade the Dow Jones Industrial Average was down 1.25 percent, the broad-based S&P 500 sank 1.18 percent, while the Nasdaq Composite lost 1.10 percent.
In Europe, the Bank of Spain forecast that a job-destroying recession kept a tight grip on the nation’s economy in the third quarter of 2012 when output shrank by an estimated 0.4 percent.
If confirmed, the figures would mean that the Spanish recession, which has left one in four workers unemployed, is moving into a second year at a relentless pace.
The news came as Moody’s cut its debt rating for five Spanish regions by one or two notches each, blaming their weak financial positions and looming debt redemptions.
“Stocks are in the red across Europe… after rating agency Moody’s downgraded five Spanish regions,” said market analyst David Madden at trading group IG.
“The credit rating for the Spanish government remains unchanged at one notch above junk status, but this will still put pressure on the Madrid government, because the semi-autonomous regions will need to lean on Madrid even more.”
Extremadura was cut to Ba1 due to a “persistently high” operating deficit and frail liquidity. Andalucia (Ba2), Castilla-La Mancha (Ba3), Catalunya (Ba3) and Murcia (Ba3) were all cited for poor liquidity and large maturing debt obligations.
“Last night’s downgrade of five Spanish regions… is likely to keep the pressure on the Spanish government’s finances, given that the regions are likely to become much more reliant on the central government bailout funding facility as their interest costs rise,” added CMC Markets analyst Michael Hewson.
In London, the top-end consumer goods sector was in focus after Mulberry warned that annual profits would be lower than last year, due to falling wholesale revenues and international retail sales.
In reaction, Mulberry shares slumped to 925 pence. It later stood at 1,080 pence, down 18.18 percent from Monday’s closing level.
Rival luxury goods firm Burberry saw its share price tumble 3.41 percent to 1,132 pence. Earlier this month, Burberry said group sales growth slowed during its second quarter.
European stocks drop on Spanish, US gloom
