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Debt and job worries hit shares | Debt and job worries hit shares |
(about 2 hours later) | |
European shares fell sharply for the second consecutive day as concerns about some governments' debt levels continued to weigh on investors. | |
In Paris, the Cac index closed down 3.5% and German and UK markets also lost ground. | |
It came as new questions were raised about European countries' ability to control their swollen budget deficits. | |
In Portugal, opposition parties defeated a government austerity plan that would have cut spending. | |
Instead, they passed their own bill, allowing the country's autonomous regions to rack up even more debt. | |
Investors worry that if regulators can't help stem problems now, they could end up snowballing and becoming an ever bigger spread elsewhere Nicholas Colas, ConvergEx Q&A: Global market turmoil | Investors worry that if regulators can't help stem problems now, they could end up snowballing and becoming an ever bigger spread elsewhere Nicholas Colas, ConvergEx Q&A: Global market turmoil |
Concerns about these deficits are undermining faith in the region's euro currency - with Greece and Spain also grappling with massive budget shortfalls. | Concerns about these deficits are undermining faith in the region's euro currency - with Greece and Spain also grappling with massive budget shortfalls. |
And growing budget deficits also mean that governments cannot afford to spend much more on boosting their economies. | |
'Regulator void' | |
There was a sense that the European Central Bank did not have the situation under control, said Nicholas Colas, chief market strategist at ConvergEx. | There was a sense that the European Central Bank did not have the situation under control, said Nicholas Colas, chief market strategist at ConvergEx. |
"It's that void that concerns people, he said. "Investors worry that if regulators can't help stem problems now, they could end up snowballing and becoming an every bigger spread elsewhere." | "It's that void that concerns people, he said. "Investors worry that if regulators can't help stem problems now, they could end up snowballing and becoming an every bigger spread elsewhere." |
Greece has outlined ambitious plans to reduce its deficit dramatically over the next two years, but doubts remain about whether its government will be able to deliver such swingeing cuts. | Greece has outlined ambitious plans to reduce its deficit dramatically over the next two years, but doubts remain about whether its government will be able to deliver such swingeing cuts. |
"It has been a worry for Greece for weeks, but it is now spreading like wildfire, driving equity markets lower, causing further concerns about medium-term growth prospects," said Kit Juckes at ECU Group. | |
Downbeat US jobs data added to gloomy predictions for the pace of recovery in the world's largest economy. | |
Official data showed the US unemployment rate falling to 9.7% in January, from 10% in December, but this did little to ease the sell-off in shares. | |
This was exacerbated by separate data suggesting that employers axed 20,000 jobs last month, more than the 5,000 analysts expected. | |
However the Dow Jones pulled back in late trading to finish slightly ahead having been almost 170 points down at one point. | |
Earlier, London and Germany's main markets lost more than 1.5% each, Japan's Nikkei index slumped almost 3%, while stock markets in Hong Kong, Korea and China all fell sharply. | |
Asset bubbles | Asset bubbles |
Concerns over debt levels are also tapping into wider fears about the strength of the global economy, analysts said. | Concerns over debt levels are also tapping into wider fears about the strength of the global economy, analysts said. |
Some investors believe the recovery is the direct result of governments pumping billions of dollars into their economies to stimulate demand. | Some investors believe the recovery is the direct result of governments pumping billions of dollars into their economies to stimulate demand. |
When they stop pumping money in, they fear, economies will begin to shrink again. | When they stop pumping money in, they fear, economies will begin to shrink again. |
Growing budget deficits mean that governments cannot afford to spend much more on boosting their economies. | Growing budget deficits mean that governments cannot afford to spend much more on boosting their economies. |
"The real concern is that the whole recovery is nothing more than poorly-directed government stimulus which has simply had the effect of boosting asset prices," said David Morrison at GFT. | "The real concern is that the whole recovery is nothing more than poorly-directed government stimulus which has simply had the effect of boosting asset prices," said David Morrison at GFT. |