European stocks fall amid China liquidity crisis

Europe's main stock markets sank further on Monday, hit by concern over the withdrawal of US Federal Reserve stimulus and the emergence of a liquidity crisis in China, dealers said. London's benchmark FTSE 100 index sank 0.79 percent to 6,067.49 points in late morning deals, Frankfurt's DAX 30 shed 0.94 percent to 7,716.61 points and in Paris the CAC 40 lost 1.42 percent to 3,606.11. Madrid's IBEX 35 index shed 1.20 percent and Milan's FTSE Mib dived 1.01 percent, as both indices were hit also by rising Italian and Spanish state borrowing costs on the bond market, traders said. In Lisbon, bank shares fell by up to 5.0 percent, helping to drive down the main stock index by 3.03 percent. The European single currency slid to $1.3115 from $1.3122 late in New York on Friday. "Market shudder, caused by the withdrawal of QE in sight as hinted by Fed last week, has not really disappeared," said Gekko Markets analyst Anita Paluch. "The sentiment is very fragile -- which shows how addicted the markets are from the easy money." Against such a backdrop, the yield on long-term US Treasuries soared to 2.61 percent, their highest level since August 2011 -- in turn pushing eurozone bond yields surging, dealers said. "It looks like we may be in for another volatile week as investors come to terms with a global economy with tapering central bank support," said Mike McCudden, head of derivatives at online broker Interactive Investor. Global equities had already slumped last week after the Fed signalled it may begin winding down its massive bond-buying policy, known as quantitative easing (QE). Asian markets also fell sharply on Monday, extending last week's falls, as the Chinese liquidity crisis also shook sentiment. "There are two key drivers impacting bond yields across the board," McCudden told AFP. "The Fed's imminent tapering of QE is front of mind for many, but the effect is being compounded by a reported liquidity squeeze in China." He added: "With yields in Australia and Germany also up, the moves in London and Paris certainly cannot be explained away by local economic factors alone." In Asia, Chinese investors have been sent running by a crisis in the banking system, which has caused lenders to put the brakes on loans. The rates banks charge to borrow from each other has surged in the past two weeks but the People's Bank of China has refrained from injecting more cash -- owing to fears about a growth of bad debt -- which has in turn weighed on the economy. Prospects that Beijing would step in to provide money were dashed at the weekend when a commentary by the official Xinhua news agency said there was no shortage of funds in the financial system. In reaction, Shanghai stocks slumped 5.30 percent to 1,963.24 points -- below the psychological 2,000 level. Hong Kong lost 2.22 percent to end at 19,813.98 points. In Sydney, where a number of listed firms rely heavily on trade with China, the market closed down 1.47 percent, while Seoul skidded 1.31 percent lower. Elsewhere in Asia, Tokyo slid 1.26 percent to finish at 13,062.78 points. The losses reversed a 1.42-percent gain at the start of Monday's session that had been stoked by a solid victory for Prime Minister Shinzo Abe's ruling coalition in elections ahead of national upper house polls next month. In Europe, shares in Frankfurt dropped despite news of rising German business confidence in June, according to the Ifo economic institute's closely watched business climate index. And stock market investors in London shrugged off major takeover news. Mobile phone giant Vodafone launched a 7.7-billion-euro ($10.1-billion) cash offer for Kabel Deutschland, Germany's biggest cable operator, on Monday. Vodafone's share price soared following the news but later stood 0.05 percent lower at 175.77 pence. And in the mining sector, the founders of Eurasian Natural Resources Corp and the Kazakh government launched a takeover bid valuing London-listed ENRC at £3.04 billion ($4.67 billion, 3.57 billion euros). In reaction, the share price of ENRC -- one of Central Asia's largest miners -- rallied 0.97 percent to 219 pence. Eurasian Resources Group, a newly-formed consortium, said in a statement that it had offered to buy full control of ENRC after rival miner Kazakhmys agreed to sell its 26-percent stake. However, the news sent Kazakhmys shares tumbling 8.31 percent to 246.50 pence in London trade. On the London Bullion Market, gold eased to $1,282.54 an ounce, from $1.295.25 late on Friday, when it had hit the lowest level since mid-September 2010. - Dow Jones Newswires contributed to this report -