Markets slump after Fed dents hopes of fresh QE

SHARES in London and across key European markets tanked yesterday after America’s central bank signalled it was unlikely to pump further money into the US economy and a disappointing Spanish debt auction reignited concerns about the eurozone’s debt crisis, writes Peter Ranscombe.

The FTSE 100 index plunged 2.3 per cent or 134.57 points to close at 5,703.77, dropping below the 5,700-barrier at one stage and wiping out all of this week’s gains. Europe’s share indices fared even worse, with the Dax in Germany down 2.8 per cent and France’s Cac-40 falling 2.7 per cent. The Dow Jones was down more than 1 per cent when London closed.

Comments made by the US Federal Reserve on Tuesday night downplaying the chances of further quantitative easing for the world’s largest economy had dented investors’ confidence.

Sentiment also took a tumble after the Spanish government tried to sell €3.5 billion (£2.9bn) of bonds, but was only able to find buyers for about €2.6bn, stoking fears of a fresh wave of eurozone debt woes.

European Central Bank president Mario Draghi dismissed suggestions the bank could step back from the eurozone crisis after it held interest rates at a record low of 1 per cent.

Will Hedden, a sales trader at IG Index, said the factors combined to create a “perfect storm of reasons to exit the market”.

Holger Schmieding, Berenberg Bank’s chief economist, added: “The euro crisis always comes in waves and this is clearly a new wave.”