Markets sink on global fears, Sensex below 17k

Rupee, commodities slide amid weak sentiment across the world

Heightened fears that Spain might become the fourth European nation to seek an international bailout and that Greece wouldn’t fulfil its bailout commitments sparked a sell-off in stocks and commodities globally on Monday.

Weak global cues saw the Indian markets drop to their the lowest level in nearly a month. Concerns that the government might find it difficult to push economic reforms dented the sentiment.

The benchmark Sensex on Monday ended at 16,877.35, down 281.09 points, or 1.6 per cent, the most since May 25. Meanwhile, the 50-share Nifty declined 87.15 points or 1.7 per cent to 5,117.95. High-beta stocks from the metal, real estate and banking sectors declined the most.

PAIN FROM SPAIN Fresh concerns from the euro zone sparked a sell-off in equities
ASIA	July- 23	% chg*
Hang Seng	19,053.5	-3.0
Nikkei 225	8,508.3	-1.9
Kospi	1,789.4	-1.8
NIFTY	5,117.9	-1.7
SENSEX	16,877.4	-1.6
EUROPE#
Madrida Gen	610.6	-4.3
FISE MIB Index	12,553.5	-3.9
CAC 40	3,128.3	-2.1
FTSE 100	5,555.6	-1.7
DAX	6,519.5	-1.7
#At 1700 IST; *Over previous close Compiled by BS Research Bureau Source: Bloomberg

The rupee, too, fell the most in a month, weakening 1.2 per cent to 55.97 against the dollar.

Reports that half a dozen regions in Spain would have to follow in the footsteps of Valencia in seeking a financial bailout sent shock waves across financial markets. The euro weakened to a more than two-year low against the dollar as it fell below $1.21. Spanish 10-year bond yields rose above 7.5 per cent, a euro-era high.

Major Asian markets closed over one per cent lower, while European markets were trading over two per cent lower at 5 pm IST. Base metals, led by copper, declined to three-week lows and Brent crude prices came off to trade around $103 a barrel, as euro zone debt worries sparked demand concerns over commodities.

“What began as a Spanish banking bailout looks to be moving rather quickly towards a possible sovereign bailout. Overlay that with increasingly negative news on Greece and you get a fairly negative mix,” Jeremy Stretch, currency strategist at CIBC, said to Reuters.

“The undercurrent is fragile, amid fresh trouble for the debt-strapped euro zone and growing concern about a slowdown in China. There are also doubts about the Indian government’s ability to push through pending reforms, amid persistent opposition from various political parties,” said Amar Ambani, head of research, IIFL.

Reliance Communications declined more than three per cent after it had to shelve a $1-billion initial public offering of its undersea cable unit. Shares of retailers, including Pantaloon Retail, Shoppers Stop and Trent, fell after the ruling Congress party’s key ally Mulayam Singh Yadav urged the government not to proceed with opening the retail sector for foreign supermarkets.

All sectoral indices of the BSE closed with losses, while there were almost two stocks declining for each advancing one.