4:00 PM Frankfurt – European markets closed lower but flirted with 1% decline as politicians, bankers and regulators work to finalize bank bailout in Spain. Trading volume across Europe fell in May as investors stay on the sidelines. The euro eased and commodities fell.
European markets were on the defensive at the opening after central bankers and financial leaders failed to specify steps to arrest the widening contagion in the euro zone.
In London trading, FTSE 100 index declined 0.3% or 37.3 to 5,435, in Frankfurt the DAX index fell 13.4 or 0.2% to 6,131 and in Paris trading CAC 40 index eased 0.6% or 19.5 to 3,052.
Indexes in Milan, Athens and Stockholm were on the decline but in Madrid surged 1.8% to 6,552.
Trading volume across the region has fallen in the last few months as highlighted by the latest report from the London Stock Exchange.
The report noted average daily trades across its electronic order book fell 7% in May from April and dropped 20% in value to £4.3 billion from a year ago month and plunged 39% from £7 billion in May of 2010.
The Xetra trading system operator Deutsche Boerse said trading on its system fell €99 billion in the month from €99.2 billion in April.
The euro declined 0.9% to $1244 after credit rating of Spain was lowered just one notch higher than junk rating.
Stocks have been on the choppy ride all week as investors look to regulators, central bankers and politicians for concrete steps. The stakes were raised earlier in the week after President of the ECB Mario Draghi urged political leaders to find ways to support the member nations and expedite the banking and fiscal union.
European Central Bank left its key rate on hold this week but passed the responsibility to revive the long term health of the economy to politicians and the Bank of England held its lending rate at same where the rates have been for three years.
The emergency meeting of G7 finance ministers and central bankers early in the week also failed to calm market jitters with any clear direction to stem the slow moving but widening contagion in Europe.
However, Spain successfully sold €2.1 billion of bonds but only after domestic banks took most of the offering that does not bode well for the sovereign bond markets.
Talks of Spanish bank bailout gathered momentum after a report from the International Monetary Fund and the rating agency Fitch expressed concerned about the banks in the nation.
The IMF report estimated Spanish banks may need between €40 billion and €100 billion of bailout. Fitch Ratings lowered its outlook on Spanish debt by three notches and one level ahead of the junk status citing rising bad real estate loans.
Reuters reported earlier in the day that Spain is likely to request a bailout from the European rescue fund as early as tomorrow and economists speculated that troubled nation may tap as much as €40 billion.
The euro zone 17 ministers are expected to hold a special meeting as early as tomorrow afternoon to expedite the approval of the loans according to the Reuters report.
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