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European stock markets closed lower and the euro fell yesterday as concerns over the eurozone debt crisis once again unsettled investors after sharp recent gains.
Dealers said a subdued German government bond sale and continued weakness in the eurozone private sector dented sentiment and encouraged some profit-taking.
Figures showing that the commercial banks deposited record amounts with the European Central Bank added to the unease, suggesting that lenders remain reluctant to lend to each other amid ongoing market tension.
Analysts said the banks appear to want to hold their excess funds at the ECB after borrowing massively under a new three-year facility, rather than risk on-lending the money, as was hoped they would do to boost economic activity.
Spain and Italy came under heavy pressure, with the two countries seen as the next most at risk in the eurozone crisis, made more vulnerable by the lack of growth to help offset their large debt burden.
The Milan market was additionally hit after Unicredit priced its €7.5bn share offer at a 43% discount to Tuesday’s finish, sending its own and other bank shares down sharply.
In London, the FTSE index of leading companies closed down 0.55% at 5,668.45 points. In Paris, the CAC-40 index lost 1.59% to 3,193.65 points and in Frankfurt the DAX 30 dropped 0.89% to 6,111.55 points.
Milan tumbled 2.04% and Madrid shed 1.72%.
The euro fell to $1.2934 from $1.3051 in New York late Tuesday and slipped back under ¥100, to ¥99.20.
In New York, the blue-chip Dow Jones Industrial Average was off 0.10% and the tech-dominated Nasdaq Composite fell 0.19% at around 1700 GMT.
US factory orders rebounded 1.8% in November following two months of decline but missed market expectations, leaving investors with no lead after recent mostly positive economic data.
“The US equity markets are ... giving back some of yesterday’s solid gains, as the European equity markets are declining with banking concerns resurfacing to weigh on sentiment,” Charles Schwab analysts said.
“The whiff of optimism from yesterday’s session dissipated today as the concerns over eurozone debt came to the foreground again,” said trader Anita Paluch at Gekko Global Markets.
Germany raised €4bn ($4.2bn) yesterday with a sale of 10-year bonds, considered the gold standard of eurozone debt, getting €5.14bn in bids for the €5bn on offer.
In November, a similar auction of 10-year debt attracted minimal demand, sending markets into tailspin as investors feared that even Germany was losing its safe-haven status due to the eurozone crisis.
Elsewhere, a key survey showed that private sector activity in the eurozone shrunk for the fourth consecutive month in December, hitting 48.3 points to continue below the 50 boom-bust line but it was up from 47 in November.