European stocks hit by Moody's latest bank warning

[February 17, 2009]  LONDON (AP) -- European stock markets fell sharply Tuesday amid renewed concerns about the financial health of the banking system after a leading credit ratings agency warned about the impact from deteriorating economic conditions in Eastern Europe.

The FTSE 100 index of leading British shares was down 62.66 points, or 1.5 percent, at 4,072.09, while Germany's DAX was 77.76 points, or 1.8 percent, lower at 4,288.88. The CAC-40 in France fell 56.12 points, or 1.9 percent, to 2,906.10.

The drift down in Europe was led by the region's banks with Societe Generale SA in France down nearly 9 percent, and Germany's Deutsche Bank AG around 5 percent lower. And in Britain, Lloyds Banking Group PLC, already under pressure through fears it may be nationalized was over 4 percent lower.

The latest banking jitters were stoked by a report from credit ratings agency Moody's that faltering economic conditions in Eastern Europe will hit local banks and spill over to their Western owners, primarily in Austria, Italy, France, Belgium, Germany and Sweden.

"A widespread deterioration in the economic health of core markets in Eastern Europe is exerting negative rating pressure on subsidiaries' and eventually may also lead to a weakening of the parent bank's ratings assuming East European activities represent a significant part of total banking activities of the parent," Moody's said.

Also undermining investor sentiment in Europe was the expected retreat on Wall Street, which reopens after Monday's public holiday. Dow Jones futures were indicating a 117 point, or 1.5 percent, retreat at the open to 7,662 while the broader Standard & Poor's 500 futures fell 14.40 points, or 1.8 percent, to 805.70.

Earlier in Asia, concerns about the banking system dominated sentiment too. Across Japan and other Asian-Pacific countries, the cost of protecting against defaults on bank debt rose.

In South Korea, Woori Bank shares came under pressure after the lender said it would seek government funding of about $1.4 billion in an effort to boost capital and loans amid the downturn. Mid-sized Hong Kong lender Bank of East Asia, which was hit by a run on deposits in September, reported a bigger-than-expected loss for the second half.

"The news flow just hasn't stopped being negative about financials," said John Mar, co-head of sales trading at Daiwa Securities SMBC Co. in Hong Kong. "It doesn't seem like we've hit bottom yet."

Japan's Nikkei 225 stock average sank 1.4 percent to 7,645.51, as investors digested news Japan's finance chief was stepping down because of health problems after facing allegations he was drunk at last weekend's Group of Seven finance ministers' meeting in Rome.

Hong Kong's Hang Seng dropped 3.8 percent to 12,945.40, and South Korea's Kospi plummeted 4.1 percent to 1,127.19. Markets in Australia, India and Singapore also declined.

In China, where shares have surged in recent weeks on hopes its economy can sustain strong growth, the Shanghai benchmark lost 2.9 percent to 2,319.44. Mainland investors sold amid reports that regulators were looking into whether the country's recent surge in bank lending might raise financial risks.

Among Asian financials, leading Japanese bank Mitsubishi UFJ Financial Group Inc. sank 4 percent. In Hong Kong, China Construction Bank shed 5.7 percent, while heavyweight lender HSBC was down 2.5 percent.

Woori Finance Holdings, parent of Woori Bank, plunged 6.5 percent. The firm's announcement to tap state funds added to investor anxiety stirred last week when it decided against repaying some of its debt early as is normally done.

Oil prices dipped, with light, sweet crude for March delivery falling 62 cents to $36.89 in Asian trade after settling at $37.51 on Friday.

The dollar advanced 0.2 percent to 91.89 while the euro dipped 1.2 percent to $1.2637 in the wake of the Moody's report.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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