Twin worries drag markets down
Stocks in Europe and Asia fall amid worries over Eurozone crisis and Korean tensions.
Last Modified: 25 May 2010 10:01 GMT
Markets in Asia have been hit by the eurozone crisis and geopolitical tensions [AFP]

Stocks in Europe and Asia have plummeted over worries about the Eurozone's deficit crisis and heightened tensions on the Korean peninsula.

By Tuesday morning London's benchmark FTSE 100 index of leading shares tumbled by almost three per cent to strike the lowest level since early September 2009, while Frankfurt shed more than 2.5 per cent and Paris fell three per cent.

Hong Kong stocks also fell sharply to their lowest level in more than 10 months as investors avoided risk on rising financial market volatility.

The benchmark Hang Seng Index dropped 3.47 per cent, its biggest percentage drop in almost six months, to 18,985.5.

In Japan, Tokyo wiped out 3.06 per cent, hitting the lowest level since November 30 and Shanghai shed 1.90 per cent.

Korean tensions

Asian stocks have been affected following comments from Kim Jong-il, North Korea's leader, that his country may have to go to war if the South attacks, amid angry rhetoric on both sides in recent weeks.

"As a risky asset, [equities] are much more vulnerable to unexpected political shocks and there are plenty of those around at present, with growing tension in Korea the latest example that has hit markets," Ian Williams, an economist at Altium Securities, told the AFP news agency.

The growing crisis has added to the sense of panic already shaking markets as a result of the eurozone debacle, which saw the shared euro currency slide one per cent against the dollar on Tuesday morning.

"The single currency continues to be weighed down by concerns about sovereign debt across the eurozone, as well as the health of the European banking system," Michael Hewson, an analyst with CMC Markets, said.

Meanwhile, four other Spanish savings banks - Caja de Ahorros del Mediterraneo, Cajastur, Caja Extremadura and Caja Cantabria - revealed on Monday that they would merge into a single bank, Sistema Institucional de Proteccion.

That will become the fifth largest financial institution in Spain, according to market watchers.

"The Bank of Spain is pushing hard to speed up the restructuring process of the Spanish banking system," Giada Gianai, a Citigroup analyst, said.

The latest eurozone worries come amid a huge crisis in Athens.

Greece last week received billions of dollars in bailout money to help it pay off its debt obligations and avoid a crushing default.

But it added to fears that a trillion-dollar package agreed by the eurozone and International Monetary Fund earlier this month might not be enough to avoid a meltdown elsewhere in the eurozone.

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