AFP/London
European shares fell sharply yesterday and the dollar firmed against the euro amid worrying signs of contagion in the eurozone. Concern was focused on Italy and Spain with spreads between yields on their sovereign bonds and those of Germany hitting record levels, dampening hopes that the eurozone debt crisis may soon be over. In the US, a downbeat consumer spending report overshadowed the expected passage of the debt-ceiling deal in Congress. London’s benchmark FTSE 100 index of top shares was down 0.97% at 5,718.39 points. In Frankfurt, the Dax fell 2.26% to 6,796.75 points and in Paris the CAC 40 dropped 1.82% to 3,522.79 points. On the bond markets, investors sold down Spanish and Italian bonds on concerns that their debt problems would only get worse as economic growth slows. Meanwhile, the yield on German government bonds fell below the country’s inflation rate for the first time since reunification in 1990 – dropping to 2.395% compared to the 2.4% July inflation rate, as investors sought a safe haven. Swiss stocks closed in the red across the board yesterday to their lowest levels since July 2009, as investors retreated on deep anxiety over public debt in advanced economies. The Swiss Market Index of the 20 biggest companies closed down 4.09% to 5,546.94 points, in the first trading day this week after Monday’s national holiday, marking the biggest plunge since March 2009. Bank shares were hardest hit, with UBS tumbling 7.7% to 12.10 francs, Credit Suisse diving 7.41% to 26.35, and Julius Baer sliding 4.58% to 32.07. Meanwhile the Swiss franc, a refuge currency, was highly sought after and reached record highs against the euro and US dollar. The franc traded at 1.0947 franc per euro and at 0.771 franc per dollar, before easing slightly. Other European markets also dropped sharply: Milan fell by 2.53%, Madrid by 2.18% and in Zurich, the leading Swiss index fell by 4.09% after being closed on Monday for a national holiday. With troubling eurozone news and a debt deal all but certain in the US, the European single currency sank as low as $1.4158, which was the lowest level since July 21. It later stood at $1.4192 in London deals, down from $1.4248 late in New York on Monday. Adding to traders’ woes was a raft of weak figures from the US and other major economies. A US debt deal “means markets have become more able to focus on the more mundane matters of economic data, not only in Europe and the US, but also in Asia as well,” said CMC Markets analyst Michael Hewson. The US manufacturing sector was flat in July, according to a closely watched index released Monday, in another sign of how the economy has stalled. The Institute of Supply Management’s indexed survey of purchasing managers was at 50.9, down from 55.3 the previous month. A reading above 50 indicates expansion. Manufacturing in China, an economy on which many other nations rely to drive growth, also slowed abruptly – with one survey suggesting contraction – while there was similar bad news in Australia, Taiwan and India. In midday trading in the US, the Dow Jones Industrial Average was down 0.87% to 12,026.99. The broader S&P 500 dropped 1.07% to 1273.19 while the tech-heavy Nasdaq Composite shed 0.86% to stand at 2,720.96.