European stocks tank at open on Cyprus fears

PAN PYLAS AP Business Writer Published:

LONDON (AP) -- European stocks slumped at the open Monday as investors gave their initial verdict to a weekend plan to tax depositors in Cypriot banks as part of a bailout of the Mediterranean island nation.

Though Cyprus only accounts for around 0.2 percent of the combined output of the 17 European Union countries that use the euro, the tax on depositors has stoked fears of bank runs in other troubled European economies.

Since the European debt crisis began in late 2009, savers have been spared. The bailout of Cyprus, agreed to early Saturday, foresees a 6.75 percent levy on deposits below €100,000 ($130,860) rising to 9.9 percent on those above.

People in Cyprus have reacted with fury to the news and the country's new president is apparently working out a new plan to be put to Parliament that will limit the hit on small depositors. Parliament is due to vote on the bailout later. If it backs the levy, then Cyprus would be eligible for a €10 billion financial rescue from its partners in the eurozone and the International Monetary Fund.

The reaction in the markets has been largely negative too, and stocks around the world have taken a dive, along with the euro.

"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said Michael Hewson, senior market analyst at CMC Markets.

In Europe, the FTSE 100 index of leading British shares was down 1.2 percent at 6,413 while Germany's DAX fell 1.4 percent to 7,931. The CAC-40 in France was 1.8 percent lower at 7,932. Cyprus' stock exchange is closed for a bank holiday.

The euro was taking a pounding too, down 0.8 percent at $1.2944.

In Asia, Japan's Nikkei 225 index slid 2.7 percent to 12,220.63, while Hong Kong's Hang Seng dropped 2 percent to 22,082.83.

Wall Street was headed for a retreat at the open too, with Dow futures down 0.7 percent and the broader S&P 500 futures 1.2 percent lower.

Oil prices were under pressure, with the benchmark New York rate $1.21 lower at $92.24 a barrel.