European stocks fell on Friday with miners pacing the decline after India's central bank surprised markets with a quarter percentage point hike in policy rates. Investors worldwide are worried that the withdrawal of crisis-fighting stimulus measures will hamper the nascent economic recovery.
The Reserve Bank of India (RBI) increased the benchmark reverse repurchase rate to 3.5% from a record-low 3.25% and the repurchase rate to 5% from 4.75%. The surprise decision came a month before the bank’s scheduled monetary policy meeting. The rate hike by the RBI was its first since July 2008.
Meanwhile, the euro posted its biggest weekly drop against the US dollar since January as European Union (EU) leaders remained divided over the crucial issue of providing emergency financial aid to debt-ridden Greece before a summit meeting next week.
The dollar and the yen rose against most major counterparts as India unexpectedly raised interest rates and commodities fell.
The Stoxx Europe 600 index fell 0.4% to 260.20. The benchmark, which hit a 2010 closing high of 261.34 on March 18, rose 0.7% on the week.
Basic resources stocks in the Stoxx 600 fell 2.4%.
National benchmark indexes fell in 12 of the 18 western European markets.
Germany's DAX index settled 0.5% lower at 5,982.43 and the French CAC-40 index declined 0.3% to finish at 3,925.44. The UK's FTSE 100 index bucked the trend, squeezing out a 0.1% gain to close at 5,650.13.
The Greek ASE Composite Index rose 1.5 % to 2,049.36, while the euro declined 0.6% to US$1.3531 against the dollar.
Greek Prime Minister George Papandreou on March 18 set a deadline for EU leaders to craft a financial-aid mechanism for his nation by their March 25-26 summit in Brussels. Greece needs to raise about €10bn (US$13.5bn) to refinance bonds due on April 20 and May 19.
Papandreou said that the country, whose budget deficit last year was over four times the EU limit of 3%, can’t afford to keep paying current market rates.
But, German Chancellor Angela Merkel said on March 17 that the International Monetary Fund (IMF) may be the only answer to Greece’s problems. She also cautioned a day earlier in Germany’s parliament against overly hasty EU pledges of financial support for Greece.
French President Nicolas Sarkozy opposes Germany’s push for IMF assistance.
The acting Dutch Finance Minister Jan Kees de Jager said that the IMF will probably do part of Greece’s financing needs. The EU said that all members states are determined to help Greece if needed.
Rio Tinto erased an earlier gain to fall 1.6% on the day. The shares were buoyed in earlier action after it signed a US$1.35bn joint-venture deal with Aluminum Corp. of China, to develop the massive Simandou iron-ore project in Guinea.
Shares of Lloyds Banking Group jumped 8.2%. The bank, in which the U.K. government owns a 41% stake, said that it expects to be profitable on a combined basis in 2010. Analysts had been expecting a loss of around 300 million pounds before taxes for 2010, after the lender recorded a comparable loss of 6.3bn pounds for 2009.
EADS shares rose 1%. The Pentagon may extend a deadline for bids on a new aerial refueling tanker for the U.S. Air Force after EADS signaled an interest in rejoining the competition.
Vedanta Resources Plc, the largest copper producer in India, declined 3.1%.
Yara International ASA, the world’s largest supplier of mineral fertilizers, advanced 3% after UBS and Deutsche Bank recommended buying the shares.
Copper, Nickel and tin were among metals that fell on the London Metal Exchange (LME). Crude oil for April delivery fell US$1.91, or 2.3%, to US$80.29 a barrel.
The dollar and the yen rose against most major counterparts as India unexpectedly raised interest rates and commodities fell.