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Bourses get black eye
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August 10, 1999: 1:05 p.m. ET
London shares hit six-month low as rate woes dog Europe ahead of Fed meeting
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LONDON (CNNfn) - London tumbled more than 2 percent to a six-month low Tuesday as a potent mix of soaring U.S. bond yields, Wall Street weakness and fears of possible interest rate hikes drove European bourses sharply lower.
Europe's most closely tracked gauge, London's FTSE 100, suffered the worst losses of the day, falling 2.42 percent, or 148 points, to 5,978.4 -- below the trough of its recent trade range and its lowest closing level since Feb. 12. The index ended the session 10.3 percent below its lifetime peak set in May as financial and growth stocks took some of the heaviest hits.
Aggravating the decline was an early triple-digit loss on the Dow Jones industrial average.
In Frankfurt, the electronically traded Xetra Dax pared earlier losses to end down 1.7 percent at 5,000.87 despite favorable economic news earlier in the session. Tuesday's dip seemed to fly in the face of economic data showing a better than expected 4.6 percent rise in German exports in June, a possible sign of nascent recovery in Europe's economic engine.
Fed-related fears also dogged Paris traders. The CAC 40 gave up 1.11 percent to end at 4,245.35, a loss of 47.55 points, despite a strong showing by energy stocks amid hopes of a big merger in the French oil sector.
Zurich's SMI ended down 1.56 percent, or 105 points, at 6,616.7, despite a sharp jump in a leading aluminum stock involved in three-way merger talks that would create a global aluminum powerhouse on a par with U.S.-based Alcoa.
Bearish sentiment ahead of the Federal Open Market Committee's Aug. 24 policy meeting also dampened the mood across Europe as investors anticipated a rate hike of at least 25 basis points. During the session, the yield on the U.S. long bond rose to 6.25 percent in London -- its highest since October 1997 -- raising fears about a possibly adverse impact on corporate earnings.
An aluminum attraction?
Swiss and French investors remained riveted throughout the day on news of a possible three-way tie-up in the aluminum sector among Swiss group AluSuisse-Lonza, France's Pechiney (PPEC) and Canada's Alcan. A merger would create the world's largest aluminum and packaging company, with a market capitalization of $20 billion, able to rival U.S.-based giant Alcoa.
AluSuisse shares soared 66 Swiss francs in Zurich, or 3.78 percent, to 1,806 francs, while Pechiney stock lost 1.26 percent to 51.05 euros.
In the other major corporate event of the day, oil colossus BP Amoco (BPA) ended virtually flat -- down 0.08 percent at 1,229 pence -- after the company posted second quarter profits in line with expectations. The oil giant is the largest constituent in the FTSE 100, with a weighting of 9.6 percent.
BP Amoco launched a 250 million Swiss franc ($167 million) three-year bond Tuesday and announced it intends to cut 2,000 additional jobs by the end of the year, for a total of 14,500 reductions under the company's ongoing restructuring.
In Zurich, UBS lost 15.50 francs to 405, despite the banking group denying a rumor that its capital markets operations had racked up huge trading losses. A spokesman described the story as "complete rubbish."
Industrial gases group BOC (BOC) closed up just under 1 percent after it said pretax earnings for the nine months ending June 30 fell slightly to 273 million pounds ($438 million). BOC has accepted a joint $11.2 billion takeover bid from France's Air Liquide (PEI) and Air Products (AIR) of the United States.
U.K. banks led the way lower on the FTSE 100, with HSBC tumbling 5 percent and Standard and Chartered losing a whopping 8.3 percent amid fears tied to Asian exposure following heavy losses in Hong Kong. The Royal Bank of Scotland (RBOS) nosedived 7.45 percent.
Among telecoms, Cable and Wireless (CW) gave up 5.72 percent -- contributing to the 37 points that telecom stocks erased from the blue chip index.
The two French oil majors involved in a reciprocal hostile takeover battle defied the downward trend in Paris. TotalFina (PFP) officially rejected the unsolicited bid from rival Elf Aquitaine (PAQ), seemingly ending hopes of a rapprochement.
Total's stock closed up 2.26 percent, while Elf was 2.08 percent higher. The gains in the U.K. and French oil stocks came against a background of a new high for Brent crude, only a day after hitting a 22-month high.
Among the leading gainers in Frankfurt, restructuring pharmaceutical group Schering (FSCH) built on its gains from Monday, when the stock got a rating upgrade from Merrill Lynch. Schering stock advanced 3.1 percent to 104.80 euros, helped by a favorable third-quarter earnings outlook.
Heading the other way, in the minus column, specialty chemical maker Degussa-Huels (FDGS) shed 1.4 percent to 36.99 euros a day after reporting a dramatic decline in interim results. The company also forecast a decline in full-year profit from the year-earlier period.
Steel group Thyssen Krupp (FTHY) led the Dax decliners, giving up 3.3 percent.
--from staff and wire reports
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