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World markets tumble on recovery fears

World stock markets tumbled Monday, dragged down by weak U.S. employment figures and fresh fears that Europe's debt crisis is spreading.
Image: Electronic stocks board in downtown Tokyo
An electronic board displays the Nikkei Stock Index in downtown Tokyo, Japan, on Monday. Everett Kennedy Brown / EPA
/ Source: The Associated Press

World stock markets mostly fell Monday and the euro hit a new four-year low in the wake of poor U.S. jobs figures and amid fresh fears that the debt crisis that began in Greece is spreading to Hungary.

The FTSE 100 index of leading British shares was down 85.15 points at 5,126 while Germany's DAX slipped 2.4 points to 5,937. The CAC-40 fell 10.7 points to 3,442.98.

Oil was also buffeted, falling to near $71 a barrel, while Wall Street opened with little momentum. Dow Jones Industrials gained 27 points to 9,957 while the broader Standard & Poor's 500 index dropped 8.3 points to 11,566.

"The past week's data have added to concerns that strains in the region's periphery are spreading to broader economic activity," analysts at London-based Capital Economics said in a report. "Meanwhile, fears of a meltdown in the European banking system have grown," said Jennifer McKeown, Capital Economics' senior European economist.

The selling was sparked in Asia earlier Monday on fears that Europe's debt problems could spread after a Hungarian official said last week that the nation was at risk of a Greek-style fiscal crisis. The government met over the weekend and distanced itself from the comments.

The incident, however, shocked investors and pushed the euro to a fresh four-year low against the dollar. Hungary is part of the European Union, but keeps its national currency, the forint, which dropped around 5 percent last week.

"The problem seems like a cancerous thing — it's spreading from smaller country to smaller country, and many people are afraid that it will spread to a big country like France or Germany, although that's unlikely," said Jackson Wong, vice president at Tanrich Securities, in Hong Kong.

"We don't have major good news on the horizon. We still have crises down the road."

This week will be dominated by the European Central Bank's June meeting on Thursday. Analysts expect the bank to keep its monetary policy stance unchanged but will watch President Jean-Claude Trichet's press conference for views on the debt crisis, details on the bank's plan to buy bonds to help countries like Greece, and the outlook for growth and inflation.

"All in all the week is unlikely to see a let up in pressure on risk trades and will start much as the last week ended," said Mitul Kotecha, Credit Agricole's head of global foreign exchange strategy, in a report.

On Friday, stocks were hit by disappointing U.S. jobs data. A government report showed the U.S. economy created 432,000 jobs in May, far fewer than the expected 513,000. Most of the jobs were temporary hiring by the government for the U.S. census.

Castor Pang, director of research at Cinta International in Hong Kong, said the jobs figures were "much poorer than expected" and a key factor in driving down stocks. Markets were likely to seesaw throughout June.

"Volatility is very great due to lack of confidence," Pang said, calling some investors "very fearful."

The result underlined that the U.S. economic recovery is not yet picking up the momentum that investors have been looking for. The Dow Jones industrial average plunged Friday 3.2 percent to 9,931.97. Major indexes all lost more than 3 percent.

Asian indexes closed sharply lower Monday: Japan's benchmark Nikkei 225 stock plunged 380.39 points, or 3.8 percent, to 9,520.80, with investors cautious before Japan's new leader, Naoto Kan, forms his Cabinet on Tuesday.

Investors seeking the safety of the U.S. dollar helped lift it against the euro Monday. The euro fell as low as $1.1878 — falling below $1.19 for the first time since March 2006 — before pulling up to $1.1940 in early European trading. That was above the $1.1943 it bought in New York on Friday.

The dollar fell against the Japanese currency, falling to 91.64 yen from 91.80 yen.

Oil prices fell to near $71 a barrel Monday, extending last week's losses amid fears that U.S. job gains are slowing and that the European debt crisis may be spreading.

Benchmark crude for July delivery was down 20 cents to $71.31 a barrel at late morning European time after falling to as low as $69.51 earlier in the session in electronic trading on the New York Mercantile Exchange