Debt contagion stalks European stock markets

European stock markets fell further on Friday as global investor fears grew over contagion from the deepening eurozone sovereign debt crisis, after borrowing costs for France and Spain shot higher. In morning trading, London's FTSE 100 index sank 0.92 percent to 5,373.22 points, Frankfurt's DAX 30 shed 0.99 percent to 5,793.34 points and in Paris the CAC 40 dropped 0.69 percent to 2,989.53. However, in the foreign exchange market, the euro climbed to $1.3503 from $1.3457 late in New York on Thursday. European shares have fallen sharply this week as Italy, Spain and even France faced a sharp spike in borrowing costs, in a dangerous new phase as the debt crisis showed new signs of spreading. "Heading into the weekend break and we really do seem to be squaring up to another flight to safety as traders just keep taking money off the table," said analyst Terry Pratt at financial spread-betting group IG Markets. "The eurozone remains very much at the heart of these woes with yesterday's poor Spanish bond auction serving as the latest blow to the common currency, which is now looking ever more moribund as each day passes." This week, the yield on Italy's 10-year government bonds topped the 7.0 percent level considered unsustainable for the government to service its huge debts, while Spanish bond yields have also approached the crucial level. Asian markets slid again on Friday, as traders grew increasingly concerned the eurozone debt drama -- which has already resulted in huge EU/IMF bailouts for Greece, Ireland and Portugal -- could infect larger economies. Hong Kong lost 1.73 percent, Tokyo fell 1.23 percent, Sydney dropped 1.91 percent and Seoul finished 2.00 percent lower. Shanghai ended down 1.89 percent. On Wall Street, the Dow Jones Industrial Average had closed down 134.86 points (1.13 percent) to 11,770.73, partly on concerns about contagion from the eurozone crisis, analysts said. In key bond auctions on Thursday, Paris and Madrid saw their cost of borrowing jump. Spain had to pay a record 6.975 percent when it raised 3.6 billion euros in a sale of 10-year bonds. And in France, the spread between 10-year bonds and the equivalent German issue hit 200.6 basis points, or 2.006 percentage points. That means Paris must now pay more than twice as much as Germany to borrow. In addition, France raised 6.976 billion euros in new two and five-year government bond sales -- but was forced to pay a higher yield. "Yesterday was dominated by news of other big European states coming under the spotlight," said Capital Spreads head Simon Denham. "Spain was a concern as their 10-year yield edged towards 7.0 percent but the real worry was France, whose bond auction saw their yields jump substantially." Eurozone powerhouse Germany on Thursday warned Italy's new prime minister Mario Monti to move fast to slash debt. The region's debt crisis shows no sign of letting up and divisions between the European leaders continued to show as officials in Berlin came under pressure to allow the European Central Bank to play a bigger role in helping struggling economies. And on Friday Japan called on Germany -- Europe's biggest economy -- to play a leading role in dragging the region back from the brink. Jonathan Bristow, broker at Valbury Capital, argued that international community had failed to act to fix the eurozone debt drama once and for all. "The delay in any real action taken by the G20 in the eurozone has cost it dearly of late," Bristow said. "Changes in government have offered temporary relief but the underlying problems have not been addressed with enough aggression to stop them. "As a result, bond yields are still dangerously high and contagion has gone from a buzz word in the press to a real threat."