Global shares fall amid fear of Europe austerity plans

Image caption,
Markets are fearful about the impact of austerity measures

Global shares have fallen sharply as concerns continue about the impact of financial austerity measures in Greece, Portugal and Spain.

Amid fears the crisis may hit the European-wide economy, the UK's main FTSE 100 index ended down 3.1%.

Spain was worse hit - its shares lost 6.6%. France's Cac fell 4.6% and Germany's Dax 3.1%.

US share markets fared less badly, with the Dow Jones ending a choppy session down a relatively modest 1.5% at 10,620.2 points.

Both the dollar and gold rose as investors sought their traditional "safe-haven".

Gold hit new record highs near $1,250 dollars an ounce and the dollar rose against the euro.

Concerns that Greece's debt crisis could spread to other countries fuelled worries about a euro collapse.

The euro hit an 18-month low against the dollar, as doubts grew that a joint rescue plan by the European Union and the International Monetary Fund would be able to contain the crisis.

Oil hit a three and a half month low, with US light crude touching $71.61 dollars a barrel, a fall of 4% on the day and 18% since early May.

Banks hit

Across Europe banks were among the biggest fallers, with shares in Spanish lenders Banco Santander and BBVA losing 10.3% and 8.2% respectively.

In France, Societe General lost 9%, BNP Paribas 7.2%, and Credit Agricole 7%.

Among UK banks, Barclays was the biggest faller, losing 6.1%, followed by Lloyds Banking Group, which lost 4.7%.

In Germany, Deutsche Bank declined 4.6%.

Euro warning

Earlier, the German government denied a newspaper report that Chancellor Angela Merkel only agreed to back the aid package given to Greece after French President Nicolas Sarkozy threatened to pull France out of the eurozone.

A spokeswoman for the German government said the article in Spain's El Pais newspaper "is without any basis".

Analyst Lee Kok, head of research at Phillip Securities in Singapore, said investors were concerned whether the austerity measures will hit wider economic growth.

"It was taken as good news at first, but investors are starting to focus on the impact the austerity measures will have on the macroeconomic picture in Europe," he said.

In late Friday trading, the euro was trading at $1.24.4.

The value of the euro was not helped by comments made late on Thursday by Paul Volcker, a special adviser to President Obama.

Speaking in London, he warned of the "potential disintegration" of the euro.

"Clearly, I think we have to say that the euro failed and fell into a trap that was evident at the beginning," said Mr Volcker.

Austerity plans

On Wednesday, Spain's Prime Minister Jose Luis Rodriguez Zapatero announced austerity measures including a 5% cut to public sector salaries, as well as reductions to pensions and regional government spending.

He said the plan would save about 15bn euros ($19bn; £12.5bn) over two years.

Greece and Portugal have unveiled similar measures.

Meanwhile, on Monday emergency measures worth 750bn euros were agreed to try to prevent the Greek public debt crisis from affecting other eurozone countries.

The 16 countries that share the European single currency will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding.

The International Monetary Fund (IMF) will also contribute up to 250bn euros.