Rocky day for global stocks

European markets remained choppy on low volumes yesterday as finance ministers met to discuss additional financial support required to combat the region's debt crisis.London's FTSE 100 Index rose slightly in early trading before falling 0.41 per cent at 9pm UAE time. Frankfurt's Dax fell 0.54 per cent and Paris' Cac 40 Index climbed 0.06 per cent.

The European Central Bank (ECB) is preparing to inject massive quantities of liquidity into the Eurozone banking system through a process of long-term refinancing operations. The system works by allowing Eurozone banks to borrow from the ECB at one per cent for three years by pledging collateral assets that can range from government bonds to loans to small businesses.

"Europe is not interested in what is happening in Asia; it is focusing on putting solutions in place," said Guillaume Menuet, Eurozone economist at Citigroup Global Markets.

"It is proving very difficult for markets to rally given the recessionary backdrop, which is more prevalent as we approach the turn of the year," he added

Eurozone finance ministers yesterday discussed the draft text of the new Eurozone fiscal compact with a view to it being finalised by the end of January. They will also consider the size of individual bilateral loans to the International Monetary Fund,

"The talks are welcome in the sense it shows Europe is doing something. However, it does not address the short term difficulties," Menuet said. "The ECB keep reiterating they are not in it for the long run so we need a big commitment from governments to solve this crisis," he added.

Indian stocks fell to their lowest level in 28 months on growing concern that a weak rupee and high inflation will hurt the country's economic growth. The rupee has plummeted to record lows against the dollar. The sovereign debt crisis in the Eurozone is having an adverse impact on the amount of foreign capital flowing into emerging markets including India.

The Sensex, lost 112.01 points, or 0.7 per cent to 15,379.34 at the close in Mumbai, its lowest level since August 21, 2009. .

"I am not surprised that foreign investors are reducing their global exposure given the problems in their home markets," said Suresh Kumar, CEO of Emirates Financial Services.

"The domestic political situation in India is also causing a huge overhang in that India faces huge governance challenges and its parliament is in a state of disarray," he added.

Kumar says India is facing a "multiple whammy" of problems and that a broad consensus has to be reached between politicians. "There is no redeeming feature in sight on the global, domestic, economic or political fronts," he said.

"The government should not kill growth by raising interest rates at a time when the fiscal deficit is causing rising inflation," he added. The Sensex plummeted 25 per cent this year as a weak rupee, record borrowing cost hikes and the EU debt erodes earnings.

Asian stocks fell sharply after state media reported the death of North Korean leader Kim Jong-il.

South Korea's Kospi stock index shed as much as 4.9 per cent, and eventually closed down 3.4 per cent. The won, fell 1.6 per cent against the dollar.

Analysts said market volatility will remain amid questions about North Korea's succession plans.

Other Asian markets were also down on the news. Japan's main Nikkei 225 stock index lost 1.3 per cent, while Hong Kong's Hang Seng slipped 1.2 per cent.

"The market has been pretty weak, and when something unexpected happens in this kind of sentiment, people want to go for safety," Tim Leung, who helps manage about $1.5 billion at IG Investment Limited in Hong Kong, told Bloomberg.

"Whether a successor would be able to stabilise the situation with Korea is important to see. In the short term, people would want to close some of their positions to see what happens next," he added.

The Kospi 200 volatility gauge closed 10 per cent higher, the biggest advance in five weeks, at 27.98, indicating options traders expect a swing of eight per cent in the next 30 days.

"The shock on the market will be inevitable in the short term," Bae Sung-Young from Hyundai Securities. "Judging from the past cases, I forecast the impact to last for two to three days only."