World stocks drop as worries over Greece intensify

[May 14, 2012]  MILAN (AP) -- World stock markets dropped Monday as worries intensified over the condition of the eurozone and whether Greece is edging towards leaving the single currency union.

In Athens, Greek party leaders were scheduled to resume talks aimed at forming a government. But as the political wrangling dragged into its second week, markets contemplated the threat that the crisis-stricken country would not meet the terms of its bailout and drop out of the currency club.

`'Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now starts to permeate mainstream thinking in Europe," said Michael Hewson of CMC Markets.

Britain's FTSE 100 fell 1.7 percent and Germany's DAX tumbled 1.95 percent. France's CAC-40 lost 2.27 percent. Wall Street also appeared set for a lower opening, with Dow Jones industrial futures down 0.8 percent to 12,686 and S&P 500 futures losing 0.9 percent to 1,337.30.

Taking the hardest hits were the Athens Stock Exchange, which saw shares drop 3.5 percent, and Spain's Ibex, which fell 3.06 percent on continuing concerns that the country's crippled economy would not be able to keep a handle on its borrowing costs.

Problems in Europe -- which also included a loss for Chancellor Angela Merkel's party and by extension her austerity policies in a state election -- overshadowed news that China's central bank cut bank reserve requirements by 50 basis points to encourage lending.

Asian stocks also endured losses, although one notable exception was Japan, where the benchmark Nikkei 225 index rose 0.2 percent to close at 8,973.84.

Investors' concern about China's economic outlook did not appear to ease despite the Chinese central bank's decision to reserve requirement, which is expected to free over 400 billion yuan ($63.4 billion) in financing.

"The market will remain unstable in the near term," said Zhang Yang, an analyst at Sinolink Securities, based in Shanghai.

Investor nervousness remains rampant because of political uncertainty in Greece and a possible fallout to the rest of the region.

President Karolos Papoulias' efforts to broker a deal among party leaders have so far failed after May 6 elections failed to decide an outright winner. More talks to form a coalition were set for Monday.

Chances of success have been diminished after one leftist party pulled out of the talks, leading the country one step closer to new elections -- and bringing its continued membership in the euro into serious doubt.

Wall Street ended last week with a decline after JPMorgan said it lost $2 billion on poorly-thought-out trades.

Benchmark oil for June delivery was down $1.72 to $94.42 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 95 cents to settle at $96.13 in New York on Friday.

In currencies, the euro fell to $1.2869 from $1.2925 late Friday in New York. The dollar sank to 79.87 yen from 79.90 yen.

[Associated Press; By COLLEEN BARRY]

AP Business Writers Yuri Kageyama contributed from Tokyo; Elaine Kurtenbach and researcher Fu Ting contributed from Shanghai.

Follow Yuri Kageyama at Twitter at http://twitter.com/yurikageyama.

Elaine Kurtenbach at http://twitter.com/ekurtenbachsh.

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