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Europe slides into reverse
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January 13, 1999: 9:42 a.m. ET
Brazil's financial crisis sounds alarms across continent; Italy, Spain suffer most
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LONDON (CNNfn) - Europe's stock markets extended their losses Wednesday, with banking stocks suffering especially sharp declines as Brazil's financial woes flared into full-blown crisis with a decision by Brazilian authorities to let the national currency slide.
In a scenario reminiscent of the markets' chain reaction to Russia's financial collapse last summer, London, Paris and Frankfurt all took big hits, plunging from recent highs amid mounting investor worries over exposure to Brazil and other emerging markets.
The malaise spread to New York too, with the Dow Jones shedding about 100 points within minutes of the open.
In Italy, a litany of companies with heavy exposure to Brazil tumbled on Milan's bourse. The MIB30 blue-chip index slid nearly 6 percent, erasing a year-end rally, but still hovering above previous lows.
Bellwether Italian companies with heavy exposure in Brazil were beset by sharp sell-offs in their stock. Car maker Fiat was down 9 percent at a session low of 2.82 euros; tire maker Pirelli slid 5 percent to trade at 2.5 euros; while food-processing company Parmalat lost 10 percent, hitting a session floor at 1.34 euros.
A similar scenario played out Madrid's Ibex index of blue chips, which tumbled more than 8 percent as investors cast a long glance at Brazil's darkening horizon. Bellwether banking stocks BBV and Santander spearheaded the sell-off, both dropping 12 percent, while telecom operator Telefonica plummeted more than 11 percent.
In London, the FTSE 100 index slid more than 3 percent to 5,828.8, less than a week after setting an all-time peak of 6,195.6.
Financial stocks such as HSBC (HSBA) and Lloyds TSB (LLOY) led the decline amid fears of an adverse impact from overexposure to Brazil.
Drinks groups and pub operators remained under a cloud, following a profit warning from Allied Domecq (ALLD) Tuesday. Allied shares fell a further 3 percent by mid-session after a sharp fall Tuesday, and Diageo (DGE) slipped 6 percent.
A positive sales update from sector heavyweight Whitbread (WTB) nudged the stock into positive territory. Whitbread said overall group sales in December were slightly ahead of last year.
Electrical retailer Dixons (DXNS) dipped 1 percent to 901 pence as investors locked in some profits after the stock's storming rise over the past 12 months. Half-year earnings came in as expected, with a 5 percent increase in underlying profits to 81 million pounds ($133 million).
The gloom in Brazil spread to Frankfurt, where the Xetra DAX had slid 332.22 points, or more than 6 percent, by early afternoon. Brazil-wary investors focused the brunt of their anxiety on banking stocks, already beset by market suspicions of overexposure to GITIC, a failed Chinese investment trust.
Deutsche Bank (FDBK) slumped 5 percent to 48.80 euros and Dresdner Bank (FDRB) slipped 4 percent to 35.50 euros. The only real bright spot in Frankfurt was chemicals group BASF (FBAS), which announced a 5 percent share buy back, inching its shares higher.
Paris's CAC-40 index shaved 232.86 points, or 6 percent. Investors continued to sour on Société Générale [PAR: PGLE], sending the bank's shares down 10 percent to 137.90 euros. The bank claimed Tuesday that its exposure to GITIC was only $25 million, but Brazil worries weighed on the stock.
LVMH (PMC) slid almost 8 percent to 189.90. Car parts supplier Valéo (PFR) reversed a recent rise, falling 4 percent to 64.55 euros.
Swiss banks also got snagged in the negative sentiment as the SMI index tumbled 4 percent to 7,151.5 in Zurich.
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