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Europe close: Spanish debt enters the red zone

Date: Monday 18 Jun 2012

Europe close: Spanish debt enters the red zone

-Spanish debt yield rises above seven per cent
-Socialists win in French elections
-IMF war chest set to be boosted

FTSE-100: +0.76%
Dax-30: -0.31%
Stoxx 600: -0.39%
Cac-40: +0.14%
Ibex 35: +0.09%
FTSE MIB: -0.70%

The yield on Spanish 10-year debt rose to the highest level since the introduction of the euro currency on Monday as investors bet the Greek election result won’t save the single currency.

The result of the elections held at the weekend in Greece appeared to offer the country a chance of stable government, with the two main parties, new Democracy and Pasok, within sight of a numerical majority, if they can form a coalition.

But that didn’t wash on debt markets where the yield on Spanish 10-year bonds rose above 7%, the point at which, Ireland, Portugal and Greece all had to request a bailout.

The trouble is, Spain has already been promised up to €100bn by its Eurozone partners to prop up the beleaguered banking system. Investors don’t believe that will be enough, especially following news today that bad loans, as a percentage of total lending within the Spanish banking sector, reached 8.72% in April versus 8.37% in March.

Elsewhere, President Francois Hollande’s socialist party won a majority in elections to the National Assembly in France, according to exit polls.

The G20 group of nations, are due to meet in Mexico this week, ahead of that meeting there have suggestions the International Monetary Fund may receive additions to its war chest, which currently stands at €430bn.

COMPANIES

Trading on the benchmark Stoxx Europe 600 index was broadly flat despite high volumes. Automobiles and parts was the best performing sector (+1.49%) while banks fell the most, ending the day down 1.89%.

Amongst the victims were the under pressure Spanish lenders Bankia and BBVA. BMW and Daimler (the owner of the Mercedes brand) both gained in Frankfurt.

Aerospace and defence contractor EADS gained the most in Paris, finishing the session up 2.9%.

OTHER MARKETS

By 16:51 in London the euro was down 0.54% against the dollar at $1.2570.

Futures contracts for front month delivery of Brent crude had dropped 1.75% by 16.35 in London to $95.9 per barrel.

BS

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