World stocks sink as Europe debt jitters mount

[July 12, 2011]  SHANGHAI (AP) -- World share markets tumbled Tuesday as pessimism over the global economic outlook was reinforced by fears that Italy and Spain may succumb to Europe's debt crisis.

Panic over the possibility that the two economies might be too big to bail wrought havoc in financial markets.

As trading got under way in Europe, France's CAC 40 was off 2.4 percent at 3,718.07 and Britain's FTSE 100 dropped 1.7 percent to 5,831.46. Germany's DAX shed 2.3 percent to 7,064.61.

Wall Street was also set for losses with Dow futures down 0.8 percent at 12,387.

In Asia, Hong Kong's Hang Seng slid 3.1 percent to 21,663.16, South Korea's Kospi retreated 2.2 percent to 2,109.73 and the Shanghai Composite Index lost 1.7 percent to 2,754.58.

Japan's Nikkei 225 stock average shed 1.4 percent to 9,925.92. Japan's central bank ended a two-day policy meeting with a downgrade of its growth estimate following the March earthquake and tsunami disasters, cutting the forecast for the fiscal year ending March 2012 to 0.4 percent from 0.6 percent.

In Australia, the European debt worries overshadowed dissatisfaction with the government's new carbon tax on big polluters. The S&P/ASX 200 dropped 1.9 percent to 4,495.40.

"What I think is really upsetting people is what's happening in America and Europe," said RBS Morgans private client adviser Bill Bishop. "The European credit situation has got worse and the European and US banks took a big shellacking in the stock market," he said.

News Corporation's main stock continued its downward spiral, shedding 7.1 percent in reaction to the News of the World phone hacking scandal.

Big cap Chinese bank shares pulled the Hong Kong benchmark sharply lower on worries that fresh share sales will overwhelm liquidity. Worries that cornerstone investors may unload shares in Agricultural Bank of China after the one-year lockup period following its IPO further dampened sentiment.

"HSBC is another big cap share, and its exposure to the European debt situation also hurt prices," said Linus Yip, a strategist at First Shanghai Securities, in Hong Kong.

Wall Street started the week on a dismal note, with the Dow Jones industrial average hit by its biggest percentage drop in nearly a month. It fell 151.44 points, or 1.2 percent, to 12,505.76. After closing one point off its 2011 high late last week, the Nasdaq composite fell 57.19, or 2 percent to 2,802.62.

Europe's malaise weighed on the euro, which dropped 0.6 percent to $1.3948. Some have said Europe's debt crisis calls into question the future of the common currency, but the slide also reflects investors' preference to park their money in the dollar, which is considered relatively safe in times of uncertainty.

"The euro is likely to remain under downward pressure in the European trading session as the ongoing eurozone debt crisis continues to intensify," said Lee Hardman, a currency economist for Bank of Tokyo-Mitsubishi UFJ.

The dollar fell to 79.72 yen from 80.30 yen.

News that the global economy is still struggling dragged oil prices lower.

Benchmark oil for August delivery was down $1.20 to $93.95 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $1.05 to settle at $95.15 on Monday.

[Associated Press; By ELAINE KURTENBACH]

Associated Press researcher Fu Ting contributed.

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