European stocks tumbled today as investors speculated that support for bailing out Europe's indebted nations may fade.
The Stoxx Europe 600 Index posted its biggest two-day drop since March 2009, with Deutsche Bank and Credit Suisse Group both falling more than 8 per cent after the United States sued 17 lenders to recoup $196 billion (€139 billion) and the cost of insuring against default in Europe surged to a record.
The Stoxx Europe 600 Index lost 4 per cent to 223.86 at the 4.30pm close in London as all 19 industry groups declined. Standard and Poor's 500 Index futures retreated 2 per cent.
The United Kingdom's FTSE 100 Index dropped 3.6 per cent and France's CAC 40 Index lost 4.7 per cent.
US stock markets are closed today for the Labor Day holiday.
The benchmark Stoxx 600 plunged 2.4 per cent on September 2nd, after a worse-than-forecast US jobs report added to concern that the economic recovery in the United States is stalling. The gauge lost 10 per cent last month amid concern that global economic growth is slowing as Europe's sovereign-debt crisis spreads.
Italy's FTSE MIB fell 4.8 per cent, on renewed euro zone debt worries. Yields on Italian and Spanish government bonds hit their highest levels in nearly a month on Monday and are seen rising further as pressure mounts on Italy - the euro zone's third-largest economy - to get its fiscal house in order.
ECB President Jean-Claude Trichet today called for the European bailout fund to be "immediately" strengthened, and urged more structural reforms to boost the flagging financial sector.
"Europe is being hammered on the debt crisis," said Henrik Drusebjerg, senior strategist at Nordea Bank in Copenhagen. "It's Merkel getting slapped at the regional election yesterday and it's the Finns demanding collateral for the money they're wiring to Greece."
Ms Merkel's party yesterday suffered its fifth election loss this year after the chancellor failed to sway voters in her home state with a campaign based on her handling of the euro area's debt crisis.
With some euro zone states dragging their heels in approving reforms of the European Financial Stability Facility (EFSF) agreed in July, Mr Trichet and Italian Mario Draghi, who will succeed him, said any delay risked worsening the euro zone's debt crisis.
"It is clear . . . that we have an absolute and total need for all of the decisions to be implemented immediately as was decided . . . by the different heads of state and government," Mr Trichet said at the conference in Paris.
The plans to strengthen the EFSF will empower the bailout fund to buy bonds - in theory relieving the ECB of a task that has provoked the most damaging internal split in the bank's 13-year history. Euro zone leaders had hoped national parliaments would approve the reforms by early October, but that goal appears to be slipping.
Mr Draghi warned governments they should not assume the European Central Bank's bond-buying operations would continue indefinitely. "The programme is temporary and fully sterilised; most importantly as [Trichet] remarked, it cannot be used to circumvent the fundamental principle of budgetary discipline," Mr Draghi said in Paris.
Agencies
