Belfast Telegraph

Markets fall over fears for recovery

By Peter Cripps

Doubts the US can sustain its recent strong growth and mounting fears about Spain's economy triggered big losses on world markets yesterday.

Indicies fell into the red as traders returning from Easter breaks in Europe reacted to disappointing job figures in the US, which suggested the recovery in the world's biggest economy may be starting to lose momentum.

Spain's borrowing costs surged closer to levels considered unsustainable as markets fretted that it will fail to keep up with repayments on its debt mountain as its economy struggles.

The FTSE 100 Index in the UK fell 1%, while there were similar retreats for markets in France and Germany as stocks continued to surrender the strong gains made in the first quarter of 2012.

Banking stocks were among the biggest losers in London, with Lloyds, Barclays and Royal Bank of Scotland all down nearly 3% amid fears over the sector's exposure to the eurozone debt crisis.

Shares have also been hit by fears that China's growth is slowing as its exports are impacted by the weakness of some of its markets.

And tensions between the West and Iran have helped drive Brent crude oil prices above $125 (£80) a barrel, adding to fears that high oil prices will further dampen the world economy.

But despite these pressures, stock markets had made strong progress in the first quarter of 2012 - mainly driven by strong signs for the US economy, which has enjoyed strong economic growth and rising levels of job creation.

However, figures released last Friday showed that the non-farm payrolls figure was up by 120,000 in March, well below expectations and down on recent growth of more than 200,000.

And Spain's borrowing costs for benchmark 10-year loan notes rose to 5.81% from 5.74% when the Easter break began last week, reflecting fears that it will struggle to keep up with debt repayments.

Its unemployment rate is nearly 23% and the economy is back in recession and the Bank of Spain expects a contraction of 1.7% this year.

There are fears that Spain may need a bailout, which because of the country's size would put the eurozone under immense pressure.

Several other eurozone countries are also in recession as the austerity measures needed to bring down their debts harm their growth.

Kathleen Brooks, a research director at Forex.com, said: "The fundamental backdrop is still fairly weak for European equities as austerity bites in the periphery and growth contracts.

"While growth continues to disappoint and concerns about the banks increase, the odds are increasing that Spain may require a bailout at some stage this year."

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