Germany 'can't offer more stimulus'

GERMANY does not have the economic strength to launch another stimulus package now without running the risk of losing market confidence, Chancellor Angela Merkel says.

In 2009, Germany boosted its crisis-hit economy, Europe's largest, with large-scale spending, but now, said the chancellor, "we do not have the strength for a second economic package without losing international confidence".

In the debate about how to help eurozone countries hit by high deficits, debt and recession, Merkel has long stressed the need for structural reforms and cost-cutting to rebalance public finances.

Critics especially in southern Europe and France have charged that the fiscal discipline approach stifles growth and adds to the economic pain, calling instead for greater stimulus measures that would revitalise demand.

Last week, the new US Treasury Secretary Jack Lew during a Berlin visit also urged economies to stimulate consumer demand.

Speaking on Monday to an audience of bankers, Merkel also took care to highlight progress in regulating the financial system, but warned that much work remained to be done.

"We have promised the public that every financial center, every actor, every financial product, is subject to regulation, and we are still far from that," she said, while calling for the G20 to pursue efforts in this direction.

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Europe stocks recoil on US stimulus fears

EUROPEAN stock markets have joined a global sell-off over concern about a possible end to US stimulus measures and as data showed slumping business activity across the eurozone, with London coming sharply off five-year highs.

Shares in banks led indices lower overnight, overshadowing upbeat company news across other sectors.

London's FTSE 100 index of leading companies fell 1.62 per cent to 6291.54 points, a day after surpassing 6400 for the first time in more than five years on the prospect of more cash stimulus from the Bank of England.

Meanwhile in Frankfurt the DAX 30 shed 1.88 per cent to 7583.57 points, while in Paris the CAC 40 dropped 2.29 per cent to 3624.80 points.

Milan dived 3.13 per cent to 16,010 points, also hit by concerns over the outcome of upcoming legislative elections in Italy, traders said.

"Following hints from the US that the Fed may scale back their asset purchase program sooner than expected, European stock markets sold off across the board today, with usual suspect Italy the biggest faller ahead of much anticipated weekend elections," said CMC Markets trader Alex Young.

With many having viewed European financial markets as being out of kilter with the real economic backdrop, he said the overnight realignment, also due to weaker than expected eurozone activity indicators, should not have come as a great shock.

Mr Young said investors "will now be pondering whether we are entering a necessary phase of correction on this equity bull run or whether this sell-off will gain traction in the weeks ahead".

The European single currency fell to $US1.3206 from $US1.3283 late in New York yesterday. The dollar dropped to 93.02 yen from 93.61 yen, while the British pound reached the lowest point for two-and-a-half years at $US1.5132, but then rallied to $US1.5258.

Gold prices struck a seven-month low point of $US1555.55 an ounce in Asian deals. They later stood at $US1577 on the London Bullion Market compared with $US1588.50 yesterday.

US stocks moved lower overnight, with the Dow Jones Industrial Average down 0.44 per cent to 13,866.70 points in midday trading.

The broad-based S&P 500 slipped 0.56 per cent to 1503.46 points, while the tech-rich Nasdaq Composite Index fell 0.82 per cent to 3138.61.

Asian stock markets suffered a heavy sell-off overnight, with Tokyo falling 1.39 per cent, Sydney sliding 2.33 per cent and Shanghai tumbling 2.97 per cent.

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