Stock markets anxiously await European loan results

Stock markets remained jittery today amid fresh fears over the global economic recovery and ahead of a crucial repayment by European banks of a €442bn (£362bn) European Central Bank loan. In London, the FTSE 100 edged up about 10 points to 4924.64 in early trading. On Tuesday it lost 3% to close at its lowest level since last September. All major Asian stock markets sold off, following a 2.65% decline in the Dow Jones industrial average last night, while the S&P 500 fell 3.1% and the Nasdaq lost 3.85%. Japan's Nikkei ended the day nearly 2% down at 9382.64 while Hong Kong's Hang Seng dropped 0.6% to 20,129.30 and the Taiwan stock market finished 1.3% lower at 7329.37. Traders were nervous this morning ahead of the results expected at 10.15am of European banks' attempts to refinance a €442bn loan that has kept the system afloat for the past year. In place of the deal about to expire, the ECB is offering funds for three months at 1%. "The take up will be interesting to see as it will provide an indication of the short-term funding requirements that is not satisfied by the interbank market," said Gary Jenkins at Evolution Securities. If it turns out that banks need to borrow more than €300bn, it will be taken as a sign that liquidity has once against dried up and that banks are refusing to lend to each other in a potential re-run of the 2008 banking crisis. The rates at which banks lend to each other have already risen to their highest levels in 10 months ahead of the ECB refinancing amid concerns that some banks would find it difficult to function without the support of the central bank. "In the current climate to order the repayment of last year's one-year loan of €442bn [today], the ECB was taking a real chance, particularly as wholesale money markets are moribund," said David Buik at BGC Partners. He noted that the range of what capital banks are thought to need varies between €200bn estimated by Commerzbank, €250bn-€300bn by Barclays Capital and RBS above €300bn. "The market hopes RBS is wrong. If the amount required was above €300bn, foreign exchange and equity markets would be disquieted." In a dismal session yesterday, all 56 listed European banks lost some of their value: Credit Agricole 7%, Barclays 6.3%, BBVA 7.2%, Santander 6.8%, Société Générale 6.5% and BNP 6.9%.