Global stock markets closed sharply Friday amid investor fears that Greece's debt crisis could halt the global economic recovery.
In the United States, the Dow Jones Industrial Average index (INDEXDJX:.DJI) closed down 1.3%, while France's CAC 40 fell 4.6%, London's FTSE 100 Index shed 2.6% and Germany's DAX index lost 3.3%. Japan's Nikkei 225 index (INDEXNIKKEI:.N225) shed 3.1%, having fallen by 4.1% in morning trading. In Latin America markets in Brazil, Argentina, Mexico and Chile followed the down trend.
Sterling also fell sharply against the dollar and the Euro, as results poured in from the UK general election. The pound fell more than 3 cents, or 2.1%, against the dollar, to $1.4633. Against the Euro, it fell by 2.6 cents, or 2.2%, to 1.1478 Euros.
The continued global turmoil on the stock markets comes a day after Greek MPs approved drastic spending cuts in exchange for an international financial rescue plan, amid violent protests in Athens. European leaders are meeting in Brussels to finalise details of a 110 billion Euro loan package to Greece, while the G7 finance ministers have also discussed the Greek debt crisis and its implications for the global economy.
Andrew Balls runs the European division of PIMCO, the world's biggest bond investor. He says the current situation is alarmingly reminiscent of the period in 2008, surrounding the collapse of Lehman Brothers. “You have big concerns about liquidity and of markets starting not to function properly,” Mr. Balls told the BBC.
“You have a problem which starts in Greece and spreads much more widely. In 2008 there were concerns about exposure to sub-prime mortgages and those concerns meant banks didn't want to face each other or be exposed to each other. The comparison now is where banks have exposure not just to Greece but also to Spain, Portugal and Italy.”
Both Spain and Portugal also have high budget deficits and were downgraded by Standard & Poor's credit rating agency last week. There are fears they could be engulfed by the Greek debt crisis. Among the stock markets in Asia, South Korea Composite Stock Price Index (KOSPI) dropped by 2.2%, while China's Shanghai SSE Composite Index (SHA:000001) fell 1.9%. Shares in Hong Kong, Taiwan and Singapore also fell.
Japan's Prime Minister Yukio Hatoyama said he was “very concerned” by the losses. Bank of Japan, the country's central bank, said it would inject more than 20 billion USD in short-term loans to commercial banks to boost liquidity. “The Bank of Japan aims to increase a sense of security in the markets by providing ample funds,” said Bank of Japan official Yuichi Adachi.
In Latam, Brazil’s Bovespa was down 0.86%; Mexico’s IPC, 1.97%; Argentina’s Merval, 0.07% and Chile’s IPSA, 0.54%.
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