Stocks, euro slide on Cyprus bailout terms

Stocks, euro slide on Cyprus bailout terms

Europe's main stock markets lost ground and the euro fell under $1.30 on Monday on news that Cyprus might tax bank deposits as part of a controversial international bailout.

A trader works at the Frankfurt Stock Exchange in western Germany, on July 23, 2012. Europe's main stock markets lost ground and the euro fell under $1.30 on Monday on news that Cyprus might tax bank deposits as part of a controversial international bailout.

Asian equities fell heavily as the mooted plan by Cyprus to tax bank deposits raised fresh concerns the eurozone debt crisis could flare up again.

But after being down more than a percentage point in early trade, European exchanges gradually clawed their way back during the afternoon as the initial shock passed, with London's FTSE 100 index of leading companies closing down 0.49 percent at 6,457.92 points.

In Frankfurt, the DAX 30 dropped 0.40 percent to 8,010.7 points, while in Paris the CAC 40 shed 0.48 percent to 3,825.47 points.

Elsewhere, Madrid's IBEX 35 shares index fell 1.29 percent and Milan's FTSE MIB sank 0.85 percent in value.

In midday trade in the United States, the Dow Jones Industrial Average gave up 0.08 percent to 14,501.94 points, the broad-based S&P 500, which last week appeared poised to break its all time record, declined 0.30 percent to 1,556.04 points and tech-rich Nasdaq Composite Index lost 0.20 percent to 3,242.63.

In foreign exchange activity, the European single currency plunged at one point to $1.2882 in Asian deals to the lowest point since December 10, 2012.

"Euro weakness has unsurprisingly been the central story today, with the single currency slipping the most in 14 months," said Nick Dale-Lace at CMC Markets brokerage.

The euro later stood at $1.2977, down from $1.3075 late on Friday in New York.

Gold prices meanwhile rose to $1,603.75 an ounce on the London Bullion Market from $1,595.50 on Friday.

"After suffering sharp early losses in the face of eurozone plans to pick pocket the citizens of Cyprus, European indices reclaimed much of the lost ground in afternoon trade, as investors took the view that a European banking run was unlikely in the short term," said Nick Dale-Lace at CMC Markets brokerage.

Terms for a desperately-needed 10-billion-euro ($13 billion) bailout for Cyprus include a proposed levy on all deposits in the island's banks.

Deposits of more than 100,000 euros would be hit with a 9.9 percent charge, and 6.75 percent for anything below that threshold. The proposal must still be approved by parliament, where it seems to have run into solid opposition.

"The negative reaction in Europe’s financial markets to the decision to 'bail in' depositors in Cyprus has been fairly muted so far," said Capital Economics.

Markets were primarily concerned about the potential willingness of EU leaders to replicate the Cyprus actions in other member states if they are deemed successful, according to CMC Markets.

"This is reflected in the underperformance of blue chip banking names across the continent today – particularly in Spain," said Dale-Lace.

Shares in Spanish bank Santander fell by 2.33 percent, UniCredit in Italy was down by 3.61 percent, BNP Paribas lost 2.8 percent in Paris and Barclays Bank was down by 4.41 percent in London. In Germany, Deutsche Bank lost 1.88 percent.

The European Central Bank opened the door to possible amendments to the bailout deal however, arguing it was up to the Cyprus government to ensure the necessary financing.

"It's the Cyprus government's adjustment programme, not the troika's or any other government's," ECB executive board member Joerg Asmussen told a conference in Berlin. "If Cyprus's president wants to change something regarding the levy on bank deposits, that's in his hands. He must just make sure that the financing is intact," Asmussen said.

Cyprus is the fourth nation to fall victim to the eurozone debt crisis, which has already resulted in enormous EU/IMF bailout packages for Greece, Ireland and Portugal.

Back in June, meanwhile, Spain looked as if it too would need a rescue as the collapse of its banking system, largely down to a burst property bubble, forced the government into a corner.

Madrid however insisted that it was able to get by without a full rescue, seeking instead a credit line of 100 billion euros to help its banks.

In company news meanwhile, Airbus, a unit of European aerospace giant EADS, unveiled a record order of 234 medium-range A320-series jets worth $23.8 billion (18.2 billion euros) from the little-known private Indonesian carrier Lion Air.

Though now the world's largest order ever, and hailed by French President Francois Hollande as "historic", EADS shares shed 1.26 percent to 42.05 euros on what some traders put down to profit-taking after hitting a record high on Friday.

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