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European Markets In Turmoil After Rejection Of Bailout

 
   By Martin Essex 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--The dollar is higher in early London trading Tuesday, with government bonds and gold prices little changed, ahead of the opening of Europe's stock markets, which are expected to plunge again as business begins.

This follows the failure Monday of America's lawmakers to pass the bailout plan to rescue the U.S. financial system.

"What should have been a day of hope turned into a day of desperation. We are facing a systemic crisis of confidence in the global financial system that is pushing us increasingly close to a complete meltdown," said Marco Annunziata, chief economist at UniCredit Markets & Investment Banking.

"This global crisis needs a global response, and it needs it now - the alternative is giving up, and that is not an option," he added.

The euro was trading at $1.4390 at 0635 GMT, down from $1.4435 in late New York business Monday. The dollar was also firmer against the Japanese yen, up to 104.30 from 104.17.

"The rejection by the House of Representatives of the supposedly agreed plan to allow the Treasury to buy up to $700 billion of distressed mortgage-backed securities has unsurprisingly sent the stock markets into another tailspin. They forgot the first rule of policymaking in a crisis: above all do no harm," said Paul Ashworth, senior U.S. economist at Capital Economics, a consultancy.

Ahead of the opening of European equity markets, CMC Markets is expecting the FTSE 100 share index in London to open down 175 points at 4644, the DAX in Frankfurt down 135 at 5672, and the CAC-40 in Paris down 132 at 3821.

"More disturbing, there are growing signs of contagion," said Robert Lind at ABN Amro Bank. "There was an announcement of further substantial coordinated liquidity injections yesterday (Monday). But with markets now close to blind panic after the loss of the TARP vote, the pressure is growing for coordinated policy action," he added.

In the government bond markets, the December bund future was trading at 115.61 at 0635 GMT, up 0.12. But the 10-year U.S. Treasury note was down to 113-00 from 113-14, lifting its yield to 3.63% from 3.58%. Spot gold was little changed at $905.45 per ounce, down from $906.00.

In the energy markets, November Brent crude was down to $93.50 per barrel from $93.98. November Nymex light crude was down to $95.93 from $96.37.

"The failure of the U.S. Congress to approve the Paulson plan was not in the script. A deep and long U.S. recession should not be ruled out," said Gerard Lyons, chief economist at Standard Chartered Bank. It's "time to watch closely the contagion effect from the West to emerging markets."

-By Martin Essex, Dow Jones Newswires; +44 (0) 20 7842 9464; martin.essex@dowjones.com

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(END) Dow Jones Newswires

September 30, 2008 02:48 ET (06:48 GMT)


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