European Stocks Skid 3.4%; Biggest Drop in 15 Months - Wall Street Journal

By BARBARA KOLLMEYER And ISHAQ SIDDIQI

European stock markets plunged 3.4%, the largest one-day drop in more than a year, amid growing fears about global growth and that the euro zone's debt saga could intensify.

U.S. stocks also slid, and the euro weakened as investors took flight from riskier assets. Oil plunged to their lowest level since late February amid worries about the U.S. economy. Investors instead sought safe-haven assets such as German and U.S. government bonds.

European Central Bank President Jean-Claude Trichet acknowledged the risks to growth in the region, saying economic risks "may have intensified," and that recent data showed the growth pace in Europe has decelerated.

Mr. Trichet also said the bank would hold more liquidity operations to give euro-area banks more cash, a technique the central bank had used at the height of the 2008 global financial crisis to ensure that banks could guarantee to keep themselves liquid if they lost access to wholesale funding markets.

But while the ECB resumed purchases of government bonds for the first time in five months, investors were unnerved that it was only buying Portuguese and Irish government bonds, a decision that Mr. Trichet acknowledged wasn't unanimous. Both countries, as well as Greece, have received international bailouts after their ability to borrow through the bond market essentially closed.

Yields on Spanish and Italian bonds have been climbing in recent weeks, fueling worries that they could run into funding problems, and market participants had been hoping that the ECB would step in and buy their bonds in the open market. Thursday's decision suggests the bar for intervening in those markets remains high, and those bond yields began rising soon after Mr. Trichet's press conference ended.

That helped fuel the drop in the Stoxx Europe 600 index, which fell 8.65 points, or 3.4% to 243.33, its biggest one-day percentage drop since May 7, 2010, amid the crisis over Greece's finances.

Underscoring the worries that the euro-zone crisis could spread, British regulators are pushing U.K. banks to publicly reveal more information about their exposures to troubled European countries such as Belgium. Lloyds Banking Group said it disclosed its holdings of debt tied to the Belgian government and local financial institutions as part of the bank's second-quarter results at the behest of the Financial Services Authority.

Among national benchmarks, France's CAC-40 index dropped 3.9% to 3320.35, its ninth consecutive loss, while the U.K.'s FTSE 100 index slid 3.4% to 5405.76 and Germany's DAX declined 3.4% to 6414.76.

Banks, miners and energy stocks were among the biggest decliners in Europe. Lloyds Banking Group plunged 10% after the British bank swung to a first-half net loss. Royal Bank of Scotland Group dropped 6.1% and Barclays slumped 7.8%, both in London, and Société Générale slid 6.4% in Paris.

Miner Rio Tinto sank 5.4% after posting a 30% rise in first-half profit, but cited higher commodity prices and the effects of a strong Australian and Canadian dollars. Among other miners, Xstrata plunged 8.5%, BHP Billiton sank 5.1%, and Anglo American dropped 6.1%. Randgold Resources gained 6.6% after posting upbeat results.

Worries about global growth hit car stocks. Peugeot skidded 6.6% in Paris, and BMW slid 6.5% in Frankfurt.

Among other stocks, Anglo-Dutch consumer-products group Unilever gained 2.7% in London, after reporting a 10% increase in first-half profit despite what it termed "difficult markets."

Satellite-communications firm Inmarsat plunged 19% in London after warning that it will take longer than initially expected for growth to recover in its core business.

In the currency markets, the euro melted against rivals, trading at $1.4154 late in Europe, down from $1.4323 late Wednesday in New York. The dollar was at 79.94 yen from 77.06 yen, after Japan stepped in to curb the yen's strength.

Oil futures were on track for the five straight decline amid worries that the U.S. recovery has stalled and demand for oil and fuel is weakening. Gasoline demand typically peaks this time of year, but reports have suggested that drivers aren't hitting the road like they usually do in the summer. Gasoline demand for the four-week period ended July 29 fell 3.6% from a year ago, the Department of Energy reported Wednesday. That is the weakest July reading in nineyears.

Crude for September delivery slid $3.31, or 3.6%, to $88.62 in midday trade on the New York Mercantile Exchange.

Gold for August delivery pulled back from gains to slip 80 cents to $1,662.60 on Nymex's Comex division.