UK and European Sell-Off Resumes

The market sell-off came as renewed concerns surfaced about peripheral eurozone countries

Alanna Petroff 30 May, 2012 | 5:25PM
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UK markets dropped sharply on Wednesday, ending a four-day winning streak. The benchmark FTSE 100 index dropped by 94 points, or 1.7%, closing the day at 5,297. The FTSE 250 index, which tracks mid-cap companies, also declined by 163 points, or 1.5%, closing the day at 10,495. Looking at the big picture, roughly 90% of the companies traded on the FTSE 350 index--which tracks large and mid-cap companies--were in the red.

The market sell-off in the UK and Europe came as renewed concerns surfaced about peripheral eurozone countries, particularly Spain.

“The markets took the lead from bond markets today and a broad-based sell off in risk occurred,” said Kathleen Brooks, research director at GAIN Capital. “Spanish 10-year bond yields reached a fresh euro-era high above 6.7% this morning. There is an air of inevitability about Spain, similar to what happened with Ireland and Portugal, when the rise in their bond yields seemed unstoppable. Without money to support Spain from the European Central Bank (ECB) or European Union then it’s hard to see what could stop Spanish yields from surging to 7% or higher, especially if they continue rising at their current pace ... The chances are increasing that an emergency EU summit will be called imminently.”

Meanwhile, City Index’s market strategist Joshua Raymond adds that concerns over China are also leading to losses in the mining sector: “Over the last few sessions we have seen buyers emerge for heavyweight mining stocks on speculation that China could announce fresh stimulus measures to help curtail slowing growth. Yet with that speculation now dampened out of China with reports that the state would not consider re-igniting similar stimulus measures of the previous downturn, the same buyers from earlier in the week have become quick sellers today.”

The international miner Eurasian Natural Resources (ENRC) was the biggest loser on the FTSE 100, with shares falling by just over 6.5%. Shares in the miner Vedanta Resources (VED) also fell by nearly 5.5%.

The one large-cap company that managed to buck the downward trend on the FTSE 100  was Severn Trent (SVT). Shares in the water and sewage services company rose by over 2% after the firm announced it would issue a special dividend, even as the firm saw a drop in full-year profits.

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Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.

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