European Markets Tumble 3%

Arthi Gupta, Mayank Mehta and Sanjay Barot
25 May, 2010
New York City

Markets in Europe plunged after the IMF issued a warning for Spain and rising tensions in the Korean peninsula kept buyers on the sidelines. Investors overlooked the rise in the euro-zone industrial orders. Poland Central Bank leaves key interest rate at record low of 3.5%.

[R]5:00 PM Frankfurt, Paris; 11:00 PM New York – Markets in Europe plunged after the IMF issued a warning for Spain and rising tensions in the Korean peninsula kept buyers on the sidelines. Investors overlooked the rise in the euro-zone industrial orders. Poland Central Bank leaves key interest rate at record low of 3.5%.[/R]

The fear of North Korea gearing up for war, coupled with the economic worries in the euro-zone plunged European shares. IMF''s warning about Spain''s financial condition also impacted market sentiment. The euro hit a four-year low as the industrial orders surge.

In Europe, action by the Spanish government over the weekend to save a regional savings bank has heightened the fears of the stability of the financial conditions in Spain and in the region.

Traders were concerned about the strength of the euro-zone economy after the Spanish Government nationalized an ailing savings bank CajaSur. The Bank of Spain unveiled a rescue plan over the weekend for regional savings bank CajaSur, which could cost up to €2.7 billion, weighing the already strained Spain''s public finances down and further undermining confidence in the stability of European financials

In London FTSE 100 Index traded lower 151.99 or 3.00% to 4,917.62, in Paris CAC 40 Index decreased 128.81 or 3.75% to close at 3,302.12, in Frankfurt DAX index lower 174.48 or 3.01% to close at 5,631.20. In Zurich trading SMI decreased 138.38 or 2.23% to close at 6,068.21.

The International Monetary Fund warned Spain that it faces major challenges and the economy needs ""far-reaching and comprehensive reforms"" to ensure its recovery

""The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness,"" the IMF said in a statement

Four regional savings banks in Spain have announced that they have agreed to merge some operations to form a single group worth around €135 billion in assets, reports said on Monday.

The merger deal, which includes Caja de Ahorros de Mediterraneo, Cajastur, Caja de Extremadura and Caja Cantabria, is intended to consolidate the finances of the banks involved.

The announcement follows the government rescue of one of the country''s biggest regional lenders, Cajasur, over the weekend.

That development affected Spanish banking shares, while the euro was also hit due to concerns over Spain''s overall financial health.

Spain''s savings banks have been hard hit by the property sector crash and a number of these regional banks are in merger talks to shore up their solvency.

Industrial new orders for EU16 area increased by 5.2% in March 2010, after an increase of 1.9% in February and in EU27 new orders rose by 5.9% in March, after an increase of 1.1% in February 2010.

In the U.K., the Office for National Statistics said economy expanded 0.3% sequentially in the first quarter, revised up from an increase of 0.2% published in April. However, growth slowed from 0.4% increase seen in the fourth quarter of 2009.

The Poland Central Bank on Tuesday maintained its key interest rate for the eleventh consecutive month to the low of 3.5%.

The Monetary Policy Council of the National Bank of Poland decided to hold the reference rate at a record low of 3.5% on an annual basis.

The central bank maintained the lombard rate at 5% and deposit rate at 2%. The rediscount rate and discount rate remained at 3.75% and 4%, respectively.

The euro hit a four-year low of 1.2% to $1.2227 on the euro-zone debt crisis and dropped 2% to 109.53 yen.

Gainers & Losers

BIC SA fell 1.9% to €53.30 after the maker of stationery products, lighters and shavers was upgraded to “buy” in initiated coverage at Bank of America Merrill Lynch Global Research.

Beiersdorf AG rose 0.4% to €42.27 after the personal care product maker was upgraded to “outperform” from “neutral” at Credit Suisse Group AG.

Bigben Interactive SA fell 2.0% to €7.20 after the manufacturer and distributor of videogame software said fiscal year 2010 revenues fell 5% to €93.8 million from €98.5 million a year ago. Net profit for the quarter fell 27.5% to €11.9 million compared to net profit of €16.5 million a year ago.

BNP Paribas SA fell 2.5% to €45.38 after the bank was upgraded to “buy” from “hold” at Deutsche Bank AG.

Bourbon SA fell 2.3% to €29.50 after the international player in marine services was upgraded to “buy” from “underperform” at Bank of America Merrill Lynch.

Carrefour SA decreased 2.7% to €32.34 after the retailer was upgraded to “buy” from “sell” at Royal Bank of Scotland Group Plc.

Daimler AG, the manufacturer of automotive products fell 3.2% to €37.22.

Electricite de France SA, the power company fell 1.8% to €33.94.

Fimalac SA, the international financial services company declined 1.7% to €32.96.

Fresenius Medical Care AG & Co. KGaA rose 0.4% to €38.99 after the kidney dialysis company today announced its signing of a sales and purchase agreement with Bumrungrad International Ltd. to acquire Asia Renal Care Ltd.

Kabel Deutschland Holding AG fell 1.6% to €22.92 after the cable company was upgraded to “buy” in initiated coverage at Citigroup Inc.

Lagardere SCA, the publisher fell 2.3% to €25.71

Siemens AG, the engineering conglomerate declined 2.6% to €68.86.