World stocks fall on skepticism over EU summit

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World stocks fall on skepticism over EU summit

World stocks fell on Monday amid concern that a critical European summit later this week will not yield a deal that might restore confidence in the future of the 17-country euro currency.

By (AP)

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Published: Mon 25 Jun 2012, 5:43 PM

Last updated: Tue 7 Apr 2015, 12:54 PM

Investors already worried about an economic slowdown in the US and China were preparing for the European leaders to disappoint at their June 28-29 gathering in Brussels. “Various summits and official meetings, including the G-20 meeting, have failed to deliver,” said Mitul Kotecha, strategist at Credit Agricole CIB, so “markets are likely to remain relatively range bound ahead of the summit.”

Britain’s FTSE 100 declined by 0.8 percent in early trading to 5,471.56 points. Germany’s DAX and France’s CAC-40 both lost 1.5 percent to 6,170.25 and 3,044.15, respectively. After Asian indexes closed lower, Wall Street was forecast to fall on the open — Dow futures were down 0.7 percent and S&P 500 futures were down 0.8 percent.

Among the most pressing issues at the EU summit will be how to ease some of Greece’s austerity terms now that it has elected a government in favor of the international bailout. Officials in both Athens and Brussels say the current deficit targets are unrealistic. But giving Greece more time to make budget cuts could mean giving it more money to finance its debt. Several European countries are reluctant to do that.

Hopes for progress on Greece’s situation were shaken this weekend by the hospitalization of the new Greek prime minister and finance minister, which means they are going to miss the summit.

“The fact that Greece’s newly elected PM and Finance Minister will miss the EU summit due to medical treatment ensures that at least one of the far too numerous issues will not be progressed,” Marc Ostwald, analyst at Monument Securities, wrote in a note to clients.

Boosting economic growth will be another key theme at the summit. The leaders of France, Germany, Italy and Spain agreed last week to push for a growth package worth up to (euro) 130 billion ($163 billion). But the money is expected to consist mostly of existing European funds earmarked for development and is unlikely to prove big enough a stimulus to turn the eurozone economy around.

The European leaders will finally be expected to provide a long-term plan for the eurozone’s financial and political integration. The speed of such integration, which could include sharing debt burdens, will be a key point of debate. Spain would like to spread the risk and costs of rescuing its banks across the eurozone. Fear that it cannot manage on its own as sent Spain’s borrowing rates to unsustainable highs. If fiscal integration is delayed significantly, as Germany would like, market confidence in Spain could fall further, eventually pushing it to take foreign aid.

Meanwhile, Spain on Monday formally asked its fellow eurozone countries for rescue loans for its troubled banks. The amount and terms will only be agreed on July 9. Two international audits have estimated that Spain’s banks could need up to (euro) 62 billion ($77.7 billion). The country’s benchmark IBEX 35 was down 2.2 percent at 6,727.5 in morning trading.

Earlier in Asia, Japan’s Nikkei 225 index closed down 0.4 percent at 8,765.54 and South Korea’s Kospi slid 1.4 percent to 1,822.19. Australia’s S&P/ASX 200 was down 0.9 percent. But Hong Kong’s Hang Seng rose 0.3 percent.

Benchmark crude lost 64 cents to $79.12 in electronic trading on the New York Mercantile Exchange. The contract settled at $79.76 a barrel on Friday.

In currencies, the euro slipped to $1.2489 from $1.2503 in early Monday trading. The dollar fell to 80.07 yen from 80.45 yen.

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