European markets slump after US banks warn over bad loans

European stock markets fell yesterday and gold hit a record high after two US regional banks said they had been exposed to millions of dollars of bad loans and alleged fraud.

- Mark Sweney, Graeme Wearden

Signs of credit stress rattled markets in Europe and Asia. In London the FTSE 100 fell 0.9%, Germany’s Dax fell 1.8%, Italy’s FTSE Mib fell 1.5%, the Ibex in Spain was off 0.3% and France’s Cac 40 dropped 0.2%.

Many of the biggest fallers were banks. In the UK, nearly £11bn was wiped off the value of the five largest listed banks. Barclays was the worst hit, with shares closing down nearly 6%.

More widely, €37.4bn (£32bn) was wiped off the pan-European banking industry, including the UK.

Spain’s Banco Sabadell fell by 6.78%, followed by Germany’s Deutsche Bank, which shed 6%.

Concerns over credit stress in the network of loans to businesses across the world’s largest economy fuelled heavy losses on Wall Street on Thursday, followed by Asian markets, with Japan’s Nikkei 225 falling 1.6% and the Hang Seng in Hong Kong dropping 2%. US markets were calmer in yesterday morning's trading on Wall Street.