Europe drops after Russia sanctions, ECB; Wall Street slips

Thu Aug 7, 2014 4:32pm EDT
 
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By Chuck Mikolajczak

NEW YORK (Reuters) - European shares slumped and the euro lost ground on Thursday and investors moved to safe-haven government debt after a stronger-than-expected move by Russia to ban certain imports from Europe and the United States.

Initial gains on Wall Street faded, with the S&P 500 just below its 100-day moving average of around 1,913, a significant technical support level. More broadly, MSCI's world equity index .MIWD00000PUS lost 0.5 percent.

German government debt yields fell to all-time lows, on increased concern over the effect Ukraine's crisis will have on euro zone growth. The European Central Bank said following its monthly policy-setting meeting that a sanctions war could worsen the growth outlook on the continent, where demand is already weak.

"The sanctions Europe has put in are real and have teeth, the problem is they are going to bite both ways. So you have a slow European recovery that is going to get even slower, which could push it back over the edge," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

"I don’t get worried until we hit the 200-day (moving average), but I’m starting to get a little bit concerned."

The ECB held borrowing rates at record low levels on Thursday. Europe's main bourses closed lower, with London's .FTSE down 0.6 percent, Germany's DAX .GDAXI off 1 percent and France's CAC 40 .FCHI down 1.4 percent. The move for the DAX put the index down 10 percent from its record closing high in early July. [.EU]

"Geopolitical risks are heightened, are higher than they were a few months ago. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they ... have on other parts of the world," said ECB head Mario Draghi, in post-meeting comments.

Russia said on Wednesday it would ban all food imports from the United States and all fruit and vegetables from Europe in a stronger-than-expected answer to Western sanctions for Moscow's support for separatists in Ukraine.   Continued...

 
Pedestrians walk past an electronic board showing the various stock prices outside a brokerage in Tokyo August 6, 2014.  REUTERS/Yuya Shino