European Stocks Slump; Euro Also Hit By Debt Woes

European stocks pushed sharply lower Monday, and the euro weakened, after a meeting of euro-zone finance ministers over the weekend failed to come up with any plans to adequately address the European
sovereign debt crisis.

"The selloff comes after a summit of EU finance ministers in Poland over the weekend proved fruitless in reassuring investors of the euro zone's ability to ward off a sovereign default in its midst," said Ilya Spivak, strategist at FXCM. "Indeed policymakers arguably made things worse by openly threatening to withhold the October tranche of the second Greek bailout package."

Now investors turn to the delayed conference call between the European Union, the European Central Bank and International Monetary Fund and the Greek finance minister Monday afternoon to judge whether the country has done enough to bring the reform program back on track to allow the release of the EUR8 billion of funds due by the end of the month.

By 1045 GMT, the benchmark Stoxx Europe 600 index lost 1.8% to 226.03. Regionally, London's FTSE 100 index fell 1.9% to 5266.84, while the CAC-40 index in Paris shed 2.6% to 2953.34. In Frankfurt, the DAX slid 2.9% to 5408.64.

This weakness is expected to spill over to trading on Wall Street this afternoon, with the front-month Dow Jones Industrial Average futures contract down 1.5% at 11,278.0, and the Standard & Poor's 500 futures contract 1.8% lower at 1189.90.

At the same time, the cost of insuring European corporate and sovereign debt against default using credit default swaps continued to rise, with the market suggesting investors are almost certain Greece will ultimately default on its debt.

The spread on Greek credit default swaps, or CDS, widened three basis points to 60.5 points up front on Monday, according to Markit. That means it would cost $6.05 million up front and $100,000 annually to insure $10 million of Greek debt against default for five years.

Basic resource stocks were amongst the biggest fallers Monday, as base metal prices fell sharply on heavy Chinese selling during the Asian session, sparked by continuing concerns over the euro-zone debt crisis. The Stoxx Europe 600 basic resource index lost 3.6%.

Banks were similarly in decline, with lenders also taking a hit amid concerns about the global economic outlook and the possibility of a another recession, aside from any worries about a potential Greek default. The Stoxx Europe 600 Index for the sector lost 2.5%.

In the currency markets, the euro extended Friday's losses against the dollar and the yen as markets were unconvinced that European policy makers were prepared to act decisively to contain the region's debt crisis.

"Investors are concerned that the additional policy steps needed may not be agreed on time. In turn, fears that Greece could run out of money in coming weeks continue to weigh on euro sentiment," Citigroup said.

By 1050 GMT, the single currency was at $1.3671, from $1.3802 late Friday in New York, and at Y104.88, from Y105.91. The dollar was steady against the yen at Y76.72.

Gold prices were bid up, reflecting the spike in risk aversion, with the spot price for the yellow metal recently at $1,819.80 a troy ounce, up $12.20 from New York trade Friday.

Similarly, the core European sovereign debt markets benefited Monday, with the key December bund contract up 0.67 at 137.32, just off the intra-day high of 137.64.

"With few tangible results coming from the Finance Ministers' meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and bunds remain in demand," says Commerzbank.

Meanwhile, the November Nymex crude oil futures contract dropped $0.85 to $87.33 a barrel, amid worries about declining global demand as the European crisis shows now signs of letting up.