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Market Update

2% Drop in Spain, Italy Drags European Markets

Author: Barry Randall
Last Update: 10:52 AM ET February 04 2013

4:30 PM Frankfurt – European markets fell sharply after market indexes in Spain and Italy led the decliners in the region with a loss of more than 2%. Banks led the decliners. Bond yields of Spain and Italy rose and the euro edged lower.

Caution returned to world markets after investors worried about Spain and Italy regained momentum and bond yields rose in European trading.

Over the weekend, the opposition party in Spain called on Prime Minister Mariano Rajoy to resign over a corruption scandal.

Last week newspaper El Pais reported People Party maintained secret account to make payments to officials including Rajoy. The article alleged that the former treasurer of the People’s Party Luis Barcenas kept the accounts.

Also, former Prime Minister of Italy, Silvio Berlusconi made headways in the election scheduled this month on the promise of dismantling most of the reforms put in place by technocrat Mario Monti.

Berlusconi offered to remove real estate tax that could raise as much as 4 billion euros if elected in the next presidential election scheduled on February 24-25.

Markets in Europe pulled back and the benchmark index in Madrid, IBEX 35 fell 2% and the MIB index in Milan declined 2.8%.

In London, FTSE 100 index decreased 1.1% or 72 to 6,275 and in Frankfurt, DAX index dropped 1.6% or 124.50 to 7,709. In Paris trading, CAC 40 index fell 1.6% or 60.2 to 3,713.

The yield on benchmark bond in Madrid trading increased 18 basis points to 5.38 and in Milan bond yield rose 11 basis points to 4.43%.

Stocks in Review

Italian banks were in retreat after the benchmark index dropped more than 2%. UniCredit SpA decreased 5% to 4.39 euros and Intesa Sanpaolo SpA declined 4% to 1.40 euros.

Julius Baer Group Ltd declined 3% to Sfr36.30 after the wealth manager said gross margin declined to 94 basis points from 104 basis points from a year ago six-month period on its asset base of Sfr189 billion or $207 billion.

Randgold Resources Ltd soared 4% to 6,340 pence after the West Africa based precious metals miner increased its dividend payout by 25% to 50 cents a share. The miner also estimated 2013 gold production between 900,000 ounces and 950,000 ounces.

Royal Imtech NV plunged 44% to 11 euros after the stadium infrastructure services provider said it may have to write down at least 100 million euros linked to alleged irregularities in its business in Poland.

Spanish banks also fell on the worries that Prime Minister Rajoy may be forced to resign after corruption allegation indicated that his party maintained secret accounts to funnel payments to officers. Mariano denied the allegations.

Santander declined 3% to 5.85 euros and Banco Bilbao Vizcaya Argentaria SA dropped 2% to 7.15 euros.

Swatch Group AG increased 3% to Sfr252 after the Swiss watchmaker reported net income increase of 26% to Sfr1.6 billion.

Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc