A global market rally over a promised
European bailout of Spanish banks faded on Monday, as investors worried the country might have trouble paying the money back.
Finance ministers from the 17 countries that use the
euro said they were willing to lend Spain up to 100 billion euros ($125 billion) after Madrid said it would need help to shore up banks felled by bad real estate loans. Spain has not said exactly how much of that it will tap, but markets were initially cheered by the fact that it was finally owning up to needing help.
Early gains were largely lost, however, as analysts warned the deal would not spell the end of Europe's debt crisis. Some worry that the Spanish government, which is responsible for paying the money back, will struggle with the extra debt.
The government will try to get the money back from the banks, but if it cannot do so, it will have to borrow on international markets, where its borrowing rates are high.
After an initial 5 per cent surge, Madrid's Ibex stock index closed down 0.5 per cent. France's CAC-40 ended the day down 0.3 per cent to 3,043 and the FTSE index of leading British shares fell 0.1 per cent to 5,432. The DAX in Germany eked out a 0.2 per cent gain to end at 6,141.
The euro, which had surged over the weekend on news of the Spanish aid deal, fell back down, trading 0.1 per cent lower at $1.2504 on Monday.
Wall Street edged higher on the open, but then also fell back. The Dow Jones industrial average and the S&P 500 both lost 0.2 percent, to 12,524 and 1,324 respectively.
Asian stocks closed higher earlier in the day following better-than-expected data on the weekend that showed China's exports jumped in May from a year earlier.
Japan's Nikkei 225 index climbed 2 per cent to close at 8,624.90. South Korea's Kospi added 1.7 per cent to 1,867.04 and Hong Kong's Hang Seng added 2.4 percent to 18,953.63. Benchmarks in Singapore, Taiwan, mainland China, Indonesia and New Zealand also rose.
Michael Hewson, an analyst at CMC Markets, said the early market reaction had been a "relief pop" that was bound to be short-lived.
"The decision by Spanish PM Rajoy to acquiesce to the inevitable and request help for Spain's ailing banking sector at the weekend is the first sign of an acknowledgment of the problems facing the Spanish economy, but the fact it took so long in the face of so much denial remains a problem with respect to the credibility of the Spanish administration," Hewson said.
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