Stocks fall after Spain banks plea; Cyprus downgraded to 'junk' status

Asian stock markets fell today, a day after Spain formally requested help to rescue its ailing banks and investors lost hope that an upcoming summit of European leaders would yield meaningful results.

Investors already worried about an economic slowdown in the US and China were preparing for the European leaders to disappoint at their June 28-29 gathering in Brussels.

“Another day, another bout of global jitters about the state of the European Union. Overnight we saw equities on both sides of the Atlantic sold off heavily,” Cameron Peacock of IG Markets in Melbourne said in a market commentary.

Japan’s Nikkei 225 index fell 0.8% to 8,664.62 and South Korea’s Kospi was 0.2% lower at 1,822.62.

Australia’s S&P/ASX 200 lost 0.5% to 4,008.10. Hong Kong’s Hang Seng, however, was marginally higher at 18,909.84.

Among the most pressing issues at the EU summit will be how to ease some of Greece’s austerity terms now that it has elected a government in favour of the international bailout. Officials in both Athens and Brussels say the current deficit reduction targets are unrealistic.

But giving Greece more time to make budget cuts could mean giving it more money to finance its debt. Several European countries are reluctant to do that.

Anxiety over Spain escalated, when the country formally asked other euro countries for rescue loans for its banks, which are reeling from the collapse of the country’s real estate sector.

The amount and terms will be agreed on July 9. Two international audits have estimated that Spain’s banks could need up to €62bn.

Meanwhile, ratings agency Fitch downgraded Cyprus to “junk” status, prompted by the amount of rescue money that would be needed to bail out its banks which are heavily exposed to the troubled Greek economy. The country’s benchmark stock index crashed by 7.2% to 145.76 points on the downgrade.