Market mood turns sour amid Portugal tensions

July 10, 2014
Trader Robert McQuade works on the floor of the New York Stock Exchange Wednesday, July 9, 2014. Stocks inched higher in early trading Wednesday, reversing a two-day decline, as the quarterly earnings season got underway with some positive news from the giant aluminum company Alcoa. (AP Photo/Richard Drew)

LONDON (AP) — Renewed financial jitters in Europe and the failure of U.S. indexes to break through key thresholds weighed on markets Thursday as investors grew skeptical over the outlook for stocks.

In Europe, sentiment took a hit after worries over the health of one of Portugal's largest financial groups slammed the country's stock market and pushed up its borrowing rates. The tensions are centered on the Espirito Santo group of companies, which includes Portugal's largest bank Banco Espirito Santo.

Share trading in the bank was suspended after a precipitous fall of more than 16 percent, dragging the Lisbon stock exchange down more than 4 percent and pushing up the yield on Portugal's benchmark 10-year bonds by 0.21 percentage points to 3.97 percent.

The problems in Portugal weighed on stock markets around the world, particularly in Europe where memories of the most-acute phase of the debt crisis remain prominent in investors' minds.

"With Portugal looking to be in trouble once again, prudent analysis has been thrown out of the window in preference to a knee-jerk reaction," said Chris Beauchamp, market analyst at IG.

In Europe, Germany's DAX closed down 1.5 percent at 9,659.13 while the CAC-40 in France fell 1.3 percent to 4,301.26. The FTSE 100 index of leading British shares ended 0.7 percent lower at 6,672.37.

In the U.S., the Dow Jones industrial average was 0.6 percent lower at 16,883 while the broader S&P 500 index fell 0.5 percent to 1,962.

On Wednesday, stocks, particularly in the U.S., were buoyed by minutes to the last meeting of the Federal Reserve that suggested interest rates will likely stay near zero for a while, even after monetary stimulus has been removed.

But the indexes' inability to stay near their records caused some traders to turn cautious.

"The inability for the Dow to hold above 17,000 on Wednesday or the S&P to break through 2,000 may be seen as a red flag among investors that we're not yet ready for that next leg higher and as a result, we're going to see profit taking near these levels for now," said Craig Erlam, market analyst at Alpari.

Earlier, in Asia, sentiment was dented by some disappointing Chinese trade figures, with exports coming lower than anticipated. Hong Kong's Hang Seng rose 0.3 percent to 23,238.99 while China's Shanghai Composite was steady at 2,038.34. Japan's Nikkei 225 stock average ended 0.6 percent lower at 15,216.47.