Stock and bond prices drop throughout Europe

June 17, 1994|By Bloomberg Business News

LONDON -- The threat of war in North Korea and renewed concern that inflationary pressures are building in much of the industrialized world sparked significant declines in stock and bond prices across Europe yesterday.

Government bond yields soared to their highest levels in 19 months in Germany and stocks plunged to new lows for the year in France as concerns about war and the threat of rising inflation rates led large investors to dump stocks and bonds in every European market.

"Korea's looking pretty dangerous," said Nick Edwards, securities salesman at Yamaichi International. "It's affecting the bond markets."

There were signs later in the day that tensions between the U.S. and Korea might be easing, at least for now. After U.S. markets closed, President Clinton said statements yesterday by North Korean officials "could be a promising development."

"It depends on what the Koreans meant by what they said" in talks with former President Jimmy Carter, Mr. Clinton said. "We will have to see."

Mr. Carter is now on a visit to the North Korean capital of Pyongyang in what is being billed as a purely private visit aimed at easing tensions between the two countries. The former president said he believed Korea was willing to allow international inspection of its nuclear facilities.

The more hopeful talk came too late to avert the stock and bond market carnage in Europe. Stock averages fell 2 percent in Spain and Italy and more than 1 percent in France, the Netherlands, Norway and Switzerland. In France, the CAC 40 Index fell 23.58 points to 1942.81, its lowest level since last July.

The German Bundesbank added to the turmoil when it said in a monthly report it has no intention of lowering leading interest rates. The bank said "the rate horizon ought to be cleared for some time on the discount and Lombard rates."

The dollar fell to an eight-month low against the deutsche mark on concern that German interest rates were bottoming out amid rising commodity prices.

It dropped more than half a pfennig to as low as 1.6287 marks on inflation concerns before recovering to 1.6305 amid concerns about North Korea. In late New York trading it rose further to 1.6320.

Strategists said European investors were reluctant to buy any securities during the turmoil, leaving the markets vulnerable to continued selling by U.S. investment funds.

"U.S. investors are taking money out of Europe," said Marcus Grubb, global equity strategist at Salomon Brothers. "It's difficult to see the bottom."

The European share slump was all-encompassing. The FT-SE 100 index of leading British shares fell 15.7 points to 3,030.1. The German DAX index fell 19.79 points to 2,054.91 in official trading. The Italian Mibtel index fell 255 points to 11,095. The Spanish IBEX 35 index fell 69.84 points to 3,329.77.

Government bond yields rose across Europe, reflecting concern about North Korea and growing expectations for higher inflation and higher interest rates within the next several months.

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