Eurozone crisis drives stocks lower despite Facebook frenzy

World stock markets fell in nervous trade on Friday and the euro hit a new four-month low against the dollar as a downgrade hit 16 Spanish banks ahead of a key G8 meeting, rattling investors.

Shares on Wall Street briefly bucked the trend amid excitement over the social network Facebook's historic market debut, but later turned lower as the stock listing fell short of expectations.

At the close, London's benchmark FTSE 100 index of top companies lost 1.33 percent to 5,267.62 points, Frankfurt's DAX 30 dropped 0.60 percent to 6,271.22 points and in Paris the CAC 40 fell 0.13 percent to 3,008.00 points.

Madrid's IBEX-35 index was up 0.44 percent at 6,566.70 points however and Bankia shares surged as the financial sector staged a dramatic recovery despite the downgrade news.

But the European single currency tumbled as low as $1.2642 to reach a level last seen on January 16, before recovering to $1.2719 from $1.2693 Thursday. The dollar dipped to 79.13 Japanese yen from 79.28 yen.

Stocks in Asia were weak and the Tokyo market ended with a fall of 2.99 percent on the Nikkei 225 index. Sydney dived 2.67 percent, suffering its biggest fall in eight months, while Hong Kong lost 1.30 percent and Shanghai was 1.44 percent lower.

On Wall Street at around 1600 GMT, the Dow Jones Industrial Average fell 0.36 percent, the S&P 500-stock index sank 0.46 percent and the tech-rich Nasdaq, where Facebook's shares now trade, lost 0.86 percent.

The shares, priced at $38 on Thursday in the largest-ever initial public offering for a technology company, jumped 12 percent to $42.55 in the opening Nasdaq trades but within minutes fell back to the offering price.

With the Facebook fervor fading, concerns over the eurozone prevailed.

Late Thursday, Moody's slashed the ratings of 16 banks in Spain by between one and three notches, citing "renewed recession, the ongoing real-estate crisis and persistent high levels of unemployment". It also blamed the reduced creditworthiness of the government.

Fitch downgraded Greece's credit a notch, to CCC from B-, saying it was vulnerable to default amid political uncertainty over Athens's commitment to a crucial bailout plan and its possible exit from the eurozone.

"Fears that Greece could collapse at any moment, downgrades for Spanish banks, reports of runs on one or two banks in those countries.... It could well be a tough few days at the G8," said analyst Mike Mason at Sucden Financial Private Clients.

Later Friday, world leaders gather at Camp David in the United States for a two-day summit with the focus on Greece amid concerns it could leave the eurozone with wildly uncertain repercussions for the global economy.

"There is little respite in the eurozone banking crisis which is having spill-over effects on the global economy and global financial markets," said VTB Capital economist Neil MacKinnon.

"Investors are worried about deposit-runs in the eurozone banking system and the 'flight of capital' is pushing US, UK and German bond yields lower."

Germany's 10-year borrowing rate fell to a record low level of 1.399 percent in eurozone bond trading on Friday in a climate of alarm over the state of Greece and banks in Spain, but later rose to 1.427 percent.

The German Bund is the benchmark bond in the eurozone and an investment safe haven amid the turmoil in the eurozone.

In Madrid, a surprise gainer was the nation's state-rescued lender Bankia, which saw its stock soar by 23.49 percent to 1.756 euros as the Spanish financial sector staged a dramatic recovery.

Just a day after Bankia's stock was hammered by a hotly denied report of a run on its funds, and hours after Moody's Investors Service slashed its rating of most of the sector, Spanish banks staged a comeback.

The eurozone's number-one bank by market capital, Santander, surged 2.97 percent to 4.58 euros and rival BBVA advanced 3.69 percent to 4.94 euros.

"Talk of a run on the bank by depositors punished the shares hard yesterday ... but the reality is that the recent selling was maybe too much, too quickly," commented analyst Mike McCudden at online brokerage Interactive Investor.

burs-arp/wai

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