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European Indexes Drop 5% on U.S. Cue

Stocks: Bourses follow steep sell-off at Wall Street's opening. Falling dollar cushions losses for American investors.

July 16, 2002|From Times Staff and Reuters

European stock markets plunged an average of nearly 5% on Monday, taking their cue in late trading from the steep sell-off at Wall Street's opening.

The euro currency's rally against the dollar--lifting the euro's value to the $1 level--was little help in supporting share prices.

The latest slump in Europe left blue-chip indexes there with greater year-to-date declines than the U.S. Standard & Poor's 500 index has suffered. But the falling dollar has cushioned European losses for Americans invested in those shares.

Panic selling set in Monday after Wall Street opened and European bourses crashed through the lows they plumbed Sept. 21, in the wake of the terrorist attacks.

"What we're seeing is the natural progression of the bear market, and we seem to have entered a capitulation phase," said Robert Crenian, equity strategist at Dresdner Kleinwort Wasserstein in London.

In Britain, the FTSE-100 index sank 229.60 points, or 5.4%, to 3,994.50.

The main German share index tumbled 218.29 points, or 5.3%, to 3,912.51; France's CAC-40 index dived 189.60 points, or 5.4%, to 3,323.74; and Italy's MIB-30 index slid 1,136 points, or 4.3%, to 25,110.

The Bloomberg European-500 index lost 4.9% for the day.

Many European markets are at their lowest levels in at least four years.

European markets have been hammered by some of the same issues dogging the U.S. market, including fears of a weakening economic recovery, worries about new terrorist attacks and doubts about the accuracy of corporate accounting.

In theory, however, European markets should be benefiting from the stronger euro currency: The currency's gain, at the dollar's expense, should be encouraging investors to pump money into European assets.

But the flip side of a strong euro is that it makes European exports more expensive abroad, potentially hurting corporate earnings.

Year to date the German market is down 24%, the French market is down 28% and the Italian market is down 22%, measured in euros. Those are steeper losses than the 20.1% drop in the S&P 500.

Adjusted for the euro's appreciation, however, European markets have lost less than the S&P 500. In dollar terms--the return that's relevant for American investors who own European stocks--the German market is down 14.4% this year, the French market is off 19% and the Italian market is down 12%.

In other markets Monday, Canada's S&P/TSX index lost 2.1% to 6,677.76 and Mexico's IPC index eased 0.4% to 6,372.08.

They had been off much more sharply but rebounded with Wall Street.

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