GLOBAL MARKETS: European Stocks And Euro Weaken LONDON (Dow Jones)--European stocks fell in choppy trade Monday, giving up earlier gains as banking stocks lost ground amid worries about the impact of the Bank of Spain's bailout of CajaSur.
At the same time, the euro was weaker, trading below $1.24, while prices of 'safe-haven' assets like German bunds and gold were firmer.
Elsewhere, sterling was down and gilts up as U.K. chancellor of the exchequer George Osborne said the new government had found GBP6.25 billion of savings for the current financial year.
"There is an air of nervousness and apprehension in the [stock] markets as we start trading this week and investors are refusing to hold onto any gains for too long, fearing that they could quickly reverse," said Giles Watts, head of equities at City Index. "The nationalization over the weekend of Spanish bank CajaSur serves as a stark warning to the markets and there is the fear that further bailouts could become a theme should governments not get a grip on sovereign debt quickly," he added.
The pan-European Stoxx 600 banks index fell 1.1%, while Spanish banks Banco Bilbao Vizcaya Argentaria and Banco Santander lost 3.1% and 2.4% respectively.
By 1050 GMT, the Stoxx Europe 600 index was down 0.6% at 235.74. London's FTSE 100 index was down 0.8% at 5024.86, Frankfurt's DAX index was 1.5% lower at 5740.77, and Paris's CAC-40 index was down 0.8% at 3401.81.
Meanwhile, U.S. stock futures pointed to a lower open on Wall Street. The June Dow Jones Industrial Average futures contract was down 0.9% at 10,070, and the June S&P 500 futures contract was 1.2% lower at 1071.9.
On Saturday, Spain's central bank moved to take over church-controlled savings bank CajaSur, holding 0.6% of total Spanish banking assets, which faced difficulties due to distressed real-estate exposure. "The Bank of Spain, which in our opinion is a strong regulator, is acting sensibly. Even if the BoS wanted to force institutions to recognize all the potential losses upfront, they can't do it because some of them are so heavily exposed to risky assets that they might run into serious trouble," said Santiago Lopez Diaz, analyst at Credit Suisse.
However, "the intervention [of the BoS] may raise concerns for the financial system, for the sovereign-risk profile and for the economy in general (although we want to stress that the stability of the system, in our opinion, is not at risk)," said Diaz.
In the U.K., stocks, sterling and gilts showed little reaction to the news that the government will make GBP6.25 billion of savings this year. Osborne said the immediate deficit reductions would help restore confidence in the U.K. economy but the announcement was largely as expected, traders said, adding that investors are waiting for the emergency budget in June.
Looking ahead to the day's economic releases, no major figures are expected from the U.K. or the euro zone so attention will turn to U.S. existing-home sales data at 1400 GMT, which are expected to show a continuing recovery in demand as the Federal government's buyers' grant attracts people back to the market, said Adrian Foster, analyst at Rabobank. "It's a slowly-ticking clock but we are getting closer to getting a read on the U.S. property market without the artificial stimulus of tax-payer support," Foster said.
Also, market participants are keeping a cautious eye on the Korean situation after North Korea sank a South Korean warship.
In Asia Monday, stock markets ended mostly higher, with Chinese property developers in Hong Kong and the mainland surging on anticipation that Beijing might go slow on any fresh measures to curb domestic property prices.
China's Shanghai Composite ended up 3.5% and South Korea's Kospi Composite rose 0.3%. Hong Kong's Hang Seng Index rose 0.6%, but Japan's Nikkei Stock Average fell 0.3%.
Thai shares were down 2.4% as the market had its first opportunity to react to the violent political unrest last week which forced the bourse to suspend trading activity.
In the European foreign exchanges, the euro was weaker Monday, after bouncing back from its lows of last week, on light short-covering. "Last week's rise was all a positioning story as large short [euro] positions were forced to be unwound when risk was taken off the table. Given those positions have been pared back, there is room for people to reenter and sell the euro. Nothing has changed in terms of fundamentals; they are still very negative," said Bank of New Zealand foreign exchange strategist Mike Jones.
Over the weekend, European Central Bank chief Jean-Claude Trichet insisted that the euro is a credible currency but said tighter regulation is needed of banks, markets and government policies. "It's not the euro which is under threat but the fiscal policies of certain countries which must be taken in hand," he said in an interview published in the Frankfurter Allgemeine Zeitung daily.
At 1100 GMT, the euro was trading at $1.2386, down from $1.2570 in late New York trade Friday. The dollar was at Y90.14, up from Y90.02.
Among other assets, spot gold was at $1185.50 per troy ounce, up $7.32 from late New York trade Friday. But July Nymex crude oil futures were down 19 cents at $69.85 per barrel. In the European bond markets, the June bund contract was up 0.27 at 128.81. June gilts were also up 0.27, at 120.21.
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