Debt Contagion Fears Drag Europe Shares to 4 Month Lows

As reported by Reuters, European shares fell sharply to four-month lows on Tuesday, as jitters intensified that the deepening euro zone debt crisis could spread to larger economies such as Italy and Spain, putting at risk the region’s financial stability.

By 1046 GMT, the pan-European FTSEurofirst 300 index of top shares was down 1.7 percent at 1,079.20 points, having earlier dropped to a low of 1,068.92 — its lowest intraday level since mid March when the market hit a low for the year.

Investors worried that the debt crisis that has so far forced bailouts for Greece, Ireland and Portugal could spread to larger economies such as Italy, which has one of the largest public debts in the world.

Risk aversion prevailed as policymakers struggled to prevent the debt crisis from spreading. Euro zone finance ministers promised longer debt maturities and a more flexible rescue fund to help Greece and other EU debtors, but they set no deadline to act.

“The euro zone is in real difficulty and with Italy and Spain coming under pressure, it becomes evident that the current strategy to buy governments time to reform by countries lending money to each other has its limits,” said Tammo Greetfeld, equity strategist at UniCredit Group.

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