European stocks markets slid on Friday as the US debt crisis deepened amid surprisingly poor growth data out of Washington.
The euro gained against the dollar on the worrying US news and despite Moody’s ratings agency issuing a gloomy warning over Spain.
Investors focused on the potential of a US downturn and set aside company results from the likes of mining giant Anglo American, Anglo-Spanish airline IAG, pay-tv giant BSkyB and luxury giant PPR.
At closing, London’s benchmark FTSE 100 index of top shares dropped 0.99 per cent to 5,815.19 points, Frankfurt’s the DAX shed 0.44 per cent to 7,158.77 points and in Paris the CAC 40 dropped 1.07 per cent to 3,672.77 points.
Madrid’s Ibex 35 fell 0.27 per cent to 9,630.7 points after Moody’s issued its warning over embattled Spanish banks.
In foreign exchange deals, the European single currency rose to $US1.4383 in London deals from $US1.4324 late in New York on Thursday. The dollar dropped to 77.18 yen from 77.74 yen.
According to the US commerce department, second-quarter GDP grew only 1.3 per cent, down a hefty 0.4 points from market expectations, as consumer spending stalled.
“This is a shockingly weak GDP report that shows the economy growing at less than a 1.0 per cent pace in the first half of the year,” John Ryding and Conrad DeQuadros at RDQ Economics said.
“The weak numbers raise questions about the sustainability of the recovery in the second half of 2011,” Moody’s Analytics said.
It was the weakest growth since the US economy officially exited recession two years ago, and raised doubts about widespread forecasts of a 3.0 per cent-plus pace for the rest of the year.
Meanwhile, President Barack Obama warned the US was almost out of time to agree on a debt ceiling deal as Republicans and Democrats scrambled to find a way out of an impasse and avoid a disastrous default.
Obama insisted the warring sides could still reach an 11th-hour compromise on raising the $US14.3 trillion ($A13.03 trillion) debt ceiling and said both sides were “in rough agreement” on how much spending can be cut.
Red-faced Republicans late on Thursday were forced to scuttle a vote on a House of Representatives bill to avert default.
House Speaker John Boehner was dealt the embarrassing blow, having insufficient support for the measure from several members of his restive Republican caucus.
“European markets have retained their predominantly heavy tone today as the failure of the Republicans to even agree amongst themselves has increased the fears of a US default next week,” Michael Hewson, market analyst at CMC Markets said.
“This has weighed on markets today, as has renewed fears about Spain’s finances in the wake of Moody’s putting Spain’s Aa2 rating on notice for a downgrade,” Hewson said.
Moody’s dealt a blow to the euro after it threatened on Friday to downgrade the country’s rating and that of four major banks, while Spain’s unemployment rate remained the highest in the industrialised world.
Spain, with an economy the size of the Greek, Irish and Portuguese economies combined, has been battling to convince markets that it should not be lumped together with the three lame ducks now under EU and IMF rescue programs.
But it continues to suffer from the risk of contagion from the eurozone’s debt crisis.
Moody’s said the pressure on Madrid could be exacerbated by fears over the new European deal to rescue Greece which had “created a precedent” by involving the private sector and signalled a growing risk for investors holding bonds in the fragile countries of the eurozone.
In midday trading in the US, and after heavy falls at opening, the Dow Jones Industrial Average dropped 0.46 per cent to 12,183.58, the broader S&P 500 fell 0.35 per cent to 1,296.15, while the tech-heavy Nasdaq Composite shed 0.08 per cent to 2,764.05.
