London's FTSE 100 slipped into the red in early trading this morning after Fitch Ratings cut Spain's long-term credit rating and predicted a slump through 2013.
Fitch cut Spain's sovereign debt rating from ‘A' to ‘BBB,' the lowest investment grade rating, citing the cost of recapitalizing the country's banking industry and a lengthening recession.
The FTSE was down 1% at 5,392, led by miners as metal prices retreated on the news, before recovering to stand down 0.5% at 5,421 by mid-morning.
The French central bank also hit sentiment as it cut its second-quarter growth estimate. The Bank of France now expects the economy to contract by 0.1% in Q2, having previously expected growth to be unchanged.
If the figures are confirmed it would be the first contraction since France pulled out of recession in 2009.
By contrast, Germany's Bundesbank raised its 2012 domestic growth forecast from 0.6% to 1%. The forecast for 2013 was lowered from 1.8% to 1.6%, however.
The EuroStoxx 50 was 1% down at 2,118, with the French Cac down 1.5% at 3,025 and the Dax dipping 1.3% before losses were pared.
Federal Reserve chairman Ben Bernanke's comments yesterday also dented confidence across European equity indices as hopes for a fresh round of US monetary stimulus faded.
Bernanke said the situation in Europe "poses significant risks to the US financial system and economy and must be monitored closely," but did not suggest the Fed was readying further stimulus.
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