Relief over Spain bank rescue fades
PALLAVI GOGOI
NEW YORK — A burst of enthusiasm over a rescue of Spanish banks melted away within hours Monday, and investor anxiety about the troubled finances of Europe grew on both sides of the Atlantic.
On Wall Street, stocks opened sharply higher but sank the rest of the day. Selling accelerated in the last hour of trading, and the Dow Jones industrial average closed down 142 points.
More alarming, bond investors signaled that they are less confident about lending money to the governments of both Spain and Italy, which investors fear will be next to seek help.
Jim Herrick, director of equity trading at Baird & Co., said investors realized “that this Band-Aid approach with Spain will not solve larger problems in Europe and that this could be a long, arduous process.”
As investors considered the long-term fate of Europe, Herrick said, “it was time to sell.”
European countries committed over the weekend to funnel up to $125 billion to Spain to distribute to its banks, which have been driven almost to insolvency from a bust in real estate prices four years ago.
Spain became the fourth European nation to seek a rescue, after Greece, Portugal and Ireland.
Market strategists had hoped that the rescue in Spain would at least temporarily ease fear that debt problems in Europe will explode into a world financial crisis and hurt the fragile global economy.
Those strategists had predicted a rally in stocks after the deal was announced. But the relief was short-lived, and investors were still worried about an election Sunday in Greece that could lead to that country’s exit from the euro.
In the case of Spain, investors appeared uncertain about whether the rescue would be enough to save the banks and whether the terms of the loan, still undisclosed, would deliver another blow to the recession-hobbled Spanish economy.
France’s main stock index closed down 0.3 percent, and Germany’s rose just 0.2 percent. Both indexes were up more than 2 percent earlier in the day. Spain’s benchmark stock index shot higher by 6 percent but closed down 0.5 percent.
In the United States, the broader market drifted lower all day. “People want to see clarity,” said Stephen Carl, head of equity trading at The Williams Capital Group, an investment bank in New York. “No one likes a situation that’s to be determined.”
Bond investors were worried that the debt from the rescue package would put additional strain on Spain’s finances. The European Union made clear Monday that there would be some strings attached besides interest.
“When people lend money, they never do it for free. They want to know what is done with the money,” said Joaquin Almunia, the European Competition Commissioner.
Adding to the economic fear, Italy said its economy contracted by 0.8 percent in the first three months of the year, the worst showing in three years. The Italian government is struggling to fend off the perception that Italy will be next to need a rescue.
Also adding to market worries was China’s economic slowdown. A large steelmaker in China, Baoshan Iron & Steel, said it lowered steel prices as demand from makers of appliances and cars slowed.
The news sent stocks of steelmakers sharply lower.
Apple stock fell $9.15, or 1.6 percent, to $571.17, as investors appeared unimpressed by what the company unveiled at a conference for software developers in San Francisco.
