Fresh Greek debt fears hit European markets while FTSE’s ‘relief rally’ is short-lived

EUROPEAN markets suffered another grim day yesterday as worries resurfaced over Greece defaulting on its debts.

Wall Street opened on a faltering note, but the FTSE-100 managed to pull back from the brink, ending down 1.6 per cent, or 85 points, at 5,129.6, although it was more than 2 per cent down earlier in the day.

UK markets took time to digest the Independent Commission on Banking (ICB) report but signs of a relief rally among UK bank stocks waned by midday and the Greek crisis kept traders subdued.

European stocks tumbled to a two-year low, with banking shares in particular taking a hammering. The worst of these was in France with BNP Paribas falling by more than 10 per cent on fears of an imminent downgrade from Moody’s ratings agency.

The shock resignation of European Central Bank chief economist Juergen Stark last Friday, and weekend comments by German politicians suggesting Athens may have to default and be “suspended” from the eurozone, drove the euro to a ten-year low against the yen and a seven-month low against the dollar, although it later recovered some ground.

In the US, the Dow Jones Industrial Average staged a late rally to finish 0.6 per cent ahead, fears that the eurozone debt crisis would help push the world’s largest economy back into recession being tempered by hopes of Chinese support for Italy.

The DAX in Germany and the CAC 40 in France were down more than 2 per cent and 4 per cent respectively.