World stocks fall amid concern over European summit

World stocks fell sharply today amid concern that a critical European summit later this week will not yield a deal that might restore confidence in the future of the 17-country euro currency.

Investors already worried about an economic slowdown in the U.S. and China were preparing for the European leaders to disappoint at their June 28-29 gathering in Brussels. "Various summits and official meetings, including the G-20 meeting, have failed to deliver," noted Mitul Kotecha, strategist at Credit Agricole CIB.

Britain's FTSE 100 fell 1.1 percent to close at 5,450.65 points. France's CAC-40 slumped 2.2 percent to 3,021.64 while Germany's DAX dropped 2.1 percent to 6,132.39. Asian indexes closed lower earlier and Wall Street was trading down as well, with the Dow Jones industrial average off 1.3 percent to 12,470.95 and the S&P 500 down 1.8 percent at 1,310.76.

Among the most pressing issues at the EU summit will be how to ease some of Greece's austerity terms now that it has elected a government in favor of the international bailout. Officials in both Athens and Brussels say the current deficit targets are unrealistic. But giving Greece more time to make budget cuts could mean giving it more money to finance its debt. Several European countries are reluctant to do that.

Hopes for progress on Greece's situation were shaken this weekend by the hospitalization of the new Greek prime minister and finance minister, which means they are going to miss the summit.

"The fact that Greece's newly elected PM and Finance Minister will miss the EU summit due to medical treatment ensures that at least one of the far too numerous issues will not be progressed," Marc Ostwald, analyst at Monument Securities, wrote in a note to clients.

Greek stocks tanked 6.8 percent on Monday on worries due to uncertainty over the country's budget terms.

Boosting economic growth will be another key theme at the summit. The leaders of France, Germany, Italy and Spain agreed last week to push for a growth package worth up to (euro) 130 billion ($163 billion). But the money is expected to consist mostly of existing European funds earmarked for development and is unlikely to prove big enough a stimulus to turn the eurozone economy around.

The European leaders will finally be expected to provide a long-term plan for the eurozone's financial and political integration. The speed of such integration, which could include sharing debt burdens, will be a key point of debate. Spain would like to spread the risk and costs of rescuing its banks across the eurozone. Fear that it cannot manage on its own has sent Spain's borrowing rates to unsustainable highs. If fiscal integration is delayed significantly, as Germany would like, market confidence in Spain could fall further, eventually pushing it to take foreign aid.

Spain, on Monday formally asked its fellow eurozone countries for rescue loans to clean up its troubled banking sector. The amount and terms will only be agreed on July 9. Two international audits have estimated that Spain's banks could need up to (euro) 62 billion ($77.7 billion). The country's benchmark IBEX 35 closed down 3.7 percent.

Meanwhile, ratings agency Fitch on Monday downgraded Cyprus to "junk" status, prompted by the amount of rescue money that would be needed to bail out its banks which are heavily exposed to the troubled Greek economy. The country's benchmark crashed by 7.2 percent to 145.76 points on the downgrade.

Earlier in Asia, Japan's Nikkei 225 index closed down 0.4 percent at 8,765.54 and South Korea's Kospi slid 1.4 percent to 1,822.19. Australia's S&P/ASX 200 was down 0.9 percent. But Hong Kong's Hang Seng rose 0.3 percent.

Benchmark crude lost $1.42 to $78.83 in electronic trading on the New York Mercantile Exchange. The contract settled at $79.76 a barrel on Friday.

In currencies, the euro slipped to $1.2480 from $1.2503 in early Monday trading. The dollar fell to 79.50 yen from 80.45 yen.

AP