LONDON, May 9: European stocks closed sharply lower on Friday, hit by another record spike in oil prices and heavy losses on Wall Street following news of large write-downs at giant US insurer AIG.
Dealers said American International Group’s first quarter net loss of $7.81 billion and a cash call for $12.5 billion reminded investors there could still be unpleasant surprises in the fallout from the US subprime home loan crisis.
Markets have been steadier of late on the view that the worst of the crisis was over but that optimism was severely tested by the AIG lead. In London, the FTSE 100 index closed down 1.05 per cent to 6,204.70 points.
In Paris, the CAC 40 tumbled 1.88 per cent to 4,960.56 points and in Frankfurt the Dax shed 0.97 per cent to 7,003.17 points.
The Euro Stoxx 50 index of leading eurozone shares was down 1.41 per cent. On Wall Street, shares were down sharply, with sentiment hit by concerns over oil and AIG’s results.
The Dow Jones Industrial Average was down 0.91 per cent at around 1600 GMT.
“AIG’s news has prompted downgrades from the credit rating agencies and has renewed concerns about the longevity of the credit market mess,” said Briefing.com analyst Patrick O’Hare.
Analyst John Hall at Wachovia said “it’s hard to look on AIG’s first-quarter results favourably.”
”The conditions that have led to substantial realized and unrealised losses have not dissipated and don’t appear on track to do so soon, in our view,” Hall added.
In London, the banks were hit badly by the AIG lead while the miners fell on profit-taking after recent sharp gains, dealers said.
Royal Bank of Scotland lost 2.87 per cent to 347 pence, Barclays was down 2.48 per cent to 451.50 pence and Lloyds TSB fell 2.42 per cent to 433 pence.
In Paris, dealers said it was significant that the market had failed to hold at support of 5,000 points and noted that the CAC 40 had been down 2.5 per cent at one stage. “There were three things that the market did not like a second losing day in Asia, AIG’s results and continued higher oil prices,” one dealer said.
“Taken together, that is troubling. The market had risen so it would be natural for it to correct a bit but this oil price which just keeps on going up, that is worrying,” he added.
In the financials, insurer Axa lost 1.87 per cent to 23.57 euros and BNP Paribas was down 2.10 per cent to 67.44 euros.
Air France-KLM shed 3.10 per cent at 19.67 euros, like all the airlines hit by concerns over rising fuel costs.
In Frankfurt, sentiment was similarly hit by the rise in oil and the AIG lead, with Allianz down 1.01 per cent to 129.05 euros after its results and those of unit Dresdner Bank which were badly hit by the credit crisis.—AFP