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European stock markets, euro fall from highs

European stock markets plunged on Monday and the euro dropped against the dollar amid political tensions in Spain and Italy and as traders locked in profits ahead of interest rate decisions due this week.

London's FTSE 100 index of top companies fell by 1.18 percent to stand at 6,272.45 points in afternoon trading. Frankfurt's DAX gave up 1.42 percent to 7,722.46 points and in Paris the CAC lost 1.56 percent to 3,714.72 points.

Madrid's IBEX 35 decreased by 1.83 percent in value to trade at 8,079.40 points, while Milan's FTSE-Mib slumped 2.80 percent.

Most European stock markets had posted strong gains Friday on reassuring US jobs data, but Madrid was hit by news of falling profits at the country's crisis-hit banks, dealers said.

"European markets opened cautiously today... as investors opted to cash in on last Friday's thundering finish to the trading week," said Spreadex trader Shavaz Dhalla.

"The true test for optimism will be whether the markets can sustain the recent highs in the face of a potential string of poor data from the eurozone," Dhalla added.

"If such optimism fails to stand the test of time, investors could find themselves swimming in a 'sea of volatility'," he said.

In New York, US stocks retreated in early trading after a dramatic surge on Friday that took the Dow Jones Industrial Average above 14,000 points.

The Dow was down 0.70 percent, while the broad-based S&P 500 fell by 0.60 percent and the tech-heavy Nasdaq Composite Index was down 0.50 percent.

Back in Europe, data released Monday showed the number of Spaniards officially registered as unemployed rose to 4.98 million in January.

The data comes a day after the leader of Spain's opposition Socialist party pressed the country's Prime Minister Mariano Rajoy to resign amid a damaging corruption scandal.

Spain's centre-left newspaper El Pais published account ledgers purportedly showing that donations were channelled into secret payments to Rajoy and other top party officials.

Rajoy has dismissed the ledgers as false and has vehemently denies receiving any payments.

The bad economic and political news sent Spanish government bond borrowing costs higher. The rate of return on Spanish government 10-year bonds rose to 5.42 percent in trading on the secondary market, up from 5.208 percent on Friday.

Italian 10-year government bond rates held steady, as did German ones. French 10-year government bond rates rose to 2.28 percent from 2.25 percent on Friday.

Amid more eurozone strains, the European single currency slid to $1.3574 from $1.3637 on Friday, when the euro had reached a 14-month high at $1.3711.

Gold prices fell to $1,664.25 an ounce from $1,669 on the London Bullion Market last Friday.

In company news Monday, airlines were in focus after mixed earnings updates from carriers based outside of Europe.

Japan Airlines on Monday said net profit in the nine months to December fell to $1.52 billion, but it lifted its full-year profit forecast by more than 16 percent despite recent Dreamliner woes.

Etihad Airways, the fast-growing carrier of Abu Dhabi, posted a 200-percent surge in net profit in 2012.

Meanwhile, Airbus said that the US group Air Lease Corporation had placed a giant order for airliners worth about $9.0 billion (6.64 billion euros) at catalogue prices.

Shares in EADS, the company that owns Airbus, were nonetheless off by 0.78 percent at 34.92 euros in Paris.

Shares in IAG, parent of British Airways and Spain's Iberia were up by 0.14 percent to 213.90 pence in London, while those in German carrier Lufthansa fell 1.79 percent to 14.54 euros and Air France-KLM shed 2.37 percent to 8.03 euros.

In the financial sector, Commerzbank stock plunged by 5.65 percent to 1.52 euros after Germany's second-biggest bank, said that its full-year net profit tumbled to just 6.0 million euros in 2012 after heavy writedowns pushed it into the red in the fourth quarter.

Asian stock markets ended mixed Monday on profit-taking after gains fuelled by the upbeat jobs data out of the United States before the weekend, traders said.

Tokyo closed 0.62-percent higher to hit a 33-month high at 11,260.35 points, while Seoul slipped 0.23 percent and Sydney fell 0.28 percent.