Euro hits low as divisions among leaders dash hopes
THE euro hit a three-week low and European shares fell today as divisions among European leaders dashed any hopes of concrete measures to tackle the region's debt crisis, sending 10-year Spanish government bond yields above 7pc.
The realisation that the comments
"The realisation that the comments and rhetoric from Merkel are probably not pointing towards a coordinated effort to resolve the debt crisis is impacting markets," said Central Markets senior broker Joe Neighbour.
A German government source on Thursday was the latest official to downplay expectations for the summit, telling Reuters it will take time to resolve the bloc's sovereign debt crisis, however in its third year.
Data showing German unemployment rose more than expected in June as well weighed on investor appetite for euro zone assets.
On equity markets, shares reversed initial gains, led by falls in banking stocks. The FTSEurofirst 300 index fell 0.8pc to 992.63 points, during the blue chip EuroSTOXX 50 declined by 1.1pc.
The STOXX European banking index
The STOXX European banking index was down 1.6pc, with France's BNP Paribas and Germany's Deutsche Bank both sliding about 2pc.
Spanish 10-year borrowing costs in the meantime rose above 7pc, highlighting the market's concerns about the debt crisis, which could show up again in an auction of five- and 10-year Italian bonds worth up to €5.5bn taking place just hours previously the summit starts.
With interest payments on its €1.95 trillion debt already at alarming levels, Italy is likely to have to pay dearly to sell the bonds, even though domestic investors are expected to support demand.
The oil market
In the oil market, Brent crude fell more than $1 a barrel as worries over a deepening euro zone crisis outweighed news of a bigger-than-expected cut in North Sea output due to a Norwegian oil workers' strike.
Gold as well dipped ahead of the summit on signs a disappointing outcome might prompt investors to turn to the safety of the U.S. dollar.
Gold has lost some of its safe-haven appeal afterwards financial market turmoil caused by the prolonged debt crisis in Europe and the US Federal Reserve's decision to take only a modest step to boost the economy prompted investors to cash in bullion to cover losses.
Wall Street investment bank Morgan Stanley on Thursday lowered its precious metals price forecasts for 2012 through 2014, saying the move was in line with the bank's cut in its global commodity price forecasts.
Some investors are looking ahead to the European Central Bank's policy meeting then week for some action to help the euro area's battling economies, with a rate cut seen as a growing opportunity.