Asian stocks fell Thursday as hopes faded that a bold solution might be found to a crippling debt crisis that is threatening to drag Europe into a deep recession.
Japan’s Nikkei 225 fell 1.1 percent to 8,629.15. South Korea’s Kospi lost 1 percent to 1,900.01 and Hong Kong’s Hang Seng tumbled 1.4 percent to 18,970.23. Australia’s S&P/ASX 200 dropped 0.4 percent to 4,276. Benchmarks in Singapore, Taiwan and mainland China also fell.
Just hours before a key summit of European leaders was to open in Brussels, doubts were surfacing that a lasting solution to the two-year-old crisis might be reached.
One point of friction has surfaced over a proposal by French President Nicolas Sarkozy and German chancellor Angela Merkel, leaders of the two economic powerhouses among the 17 nations that use the euro. They are demanding far—reaching changes to the treaty governing the European Union to enforce fiscal discipline among its members.
That proposal is being met with resistance by the European Council, an institution that defines the priorities of the entire 27—nation EU. Its president, Herman Van Rompuy, favors going a simpler route amending existing rules that apply to the 17 euro countries to avoid the trickier step of requiring every country to approve the new treaty.
The disagreement has soured hopes for an immediate solution to the crisis.
“Normally this kind of talk would take place behind closed doors. The fact that it’s in the open suggests it already has and normal channels have, at least temporarily, broken down,” analysts at DBS Bank Ltd. said in a research note.
Additionally, certain provisions in the Franco—German proposal, such as setting automatic penalties for countries that overspend, are controversial and have the potential to delay an agreement.
Urgency was added to the situation Wednesday when ratings agency Standard & Poor’s threatened to downgrade the bonds of all EU countries because their economies were intricately linked with the 17 nations that use the euro.
On Wall Street, the Dow rose 0.4 percent to close at 12,196.37. The Standard & Poor’s 500 index rose 0.2 percent at 1,261.01. The Nasdaq composite index fell marginally to 2,649.21.
Benchmark oil for January delivery was down 13 cents to $100.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 79 cents to end at $100.49 per barrel on the Nymex on Wednesday.
In currencies, the euro rose to $1.3399 from $1.3394 late Wednesday in New York. The dollar was nearly unchanged at 77.65 yen from 77.66 yen.
