Debt Crisis: Investors flee from stocks as prospect of Greek default appears more likely
THE new quarter delivered more pain for world markets today as the prospect of a debt default in Greece appeared more and more likely.
Even with better-than-expected manufacturing activity figures for the UK and United States, the FTSE 100 Index followed Friday's completion of its worst quarter since 2002 with a further drop of 1.5pc or 74.2 points to 5054.6.
When the US markets opened lower, Germany’s DAX was down 2.85pc and France’s CAC fell by 2.37pc.
The weak start to the week came after debt-laden Greece was forced to admit it will not hit the deficit targets for 2011 and 2012 agreed with the so-called troika - who are in Athens to discuss releasing the country's next bailout instalment - as its floundering economy failed to deliver the tax income needed.
Sentiment was further weighed down by claims that finance ministers from France and Belgium were meeting to discuss ways to bolster the balance sheet of Belgian lender Dexia.
The situation reignited fears of a second banking crisis and prompted more hefty falls for UK banking stocks, including Barclays and Royal Bank of Scotland.
The only note of encouragement came from the manufacturing sector after monthly purchasing manager surveys from both sides of the Atlantic came in better than expected.
While the UK report showed growth for the first time in three months, export orders hit a 28-month low as trade with the eurozone weakened.
The deepening eurozone debt crisis increased fears over a wider global recession and, following disappointing data on China last week, mining stocks continued to drop.
Gold prices surged more than 2pc to $1,658.2 US dollars an ounce on the back of the uncertain outlook as investors moved to so-called safe haven investments.