LONDON (AP) — Market fell on Friday as investors continued to fret over Spain's finances in the run-up to a report on the state of the country's banks.
Trading was volatile, possibly due to the fact that Friday is the last day of the financial quarter, the deadline for certain trades and contracts to be settled. This sometimes involves buying and selling large amounts of stocks at the last minute in order to make a profit on a deal.
Investors were cautious over Spain, a day after the country's government announced big spending cuts it hopes will convince potential bailout creditors and investors it has a rock-solid plan to heal its public finances.
Traders are waiting for the publication later in the day of the results of stress test results into 14 of the country's banks. The tests are expected to identify a capital shortfall of around €60 billion ($77 billion).
Rating agency Moody's is also expected to issue an evaluation of Spain's creditworthiness. There are concerns the agency will downgrade Spain's government debt to junk status.
Craig Erlam, markets analyst at Alpari, said a downgrade to junk status could "create some panic" among holders of Spanish debt.
"The positive side to this is this could accelerate the bailout request," Erlam said. The other 16 countries that use the euro and the European Central Bank are prepared to help Spain financially, should it need it, but Madrid has so far put off a request.
Madrid's IBEX index was one of the worst performers in Europe as investors awaited developments. The IBEX fell 1.7 percent to close at 7,708.50.
Elsewhere, Germany's DAX ended 1 percent lower at 7,216.15 while the CAC-40 in France fell 2.5 percent to 3,354.82. The FTSE 100 index of leading British shares dropped 0.7 percent to 5,742.07.
In the U.S., the Dow Jones industrial average was 0.7 percent lower at 13,398.19 while the broader S&P 500 index fell 0.7 percent to 1,437.63.
In other financial markets, the euro was down 0.4 percent at $1.2849 and a barrel of oil was down 15 cents at $91.70.
Earlier in Asia, stocks had been buoyed by speculation that China's central bank will act soon to help the world's No. 2 economy.
Hong Kong's Hang Seng Index rose 0.4 percent to 20,840.38. South Korea's Kospi added nearly 0.4 percent to 1,996.21. But Japan's Nikkei 225 index lost 0.9 percent to 8,870.16, sinking on a government report that showed industrial production fell a further 1.3 percent in August.
Mainland Chinese shares rose ahead of an extended holiday next week. The Shanghai Composite Index gained 1.5 percent to 2,086.17 and the Shenzhen Composite Index rose 1.9 percent to 853.83.