Europe drags markets down

Markets fell on Monday after political developments over the weekend threatened to exacerbate Europe's debt problems. Bloomberg reports:

Stocks plunged worldwide and the euro weakened as Europe’s backlash against budget cuts gained momentum, while commodities retreated as manufacturing shrank.

The Standard & Poor’s 500 Index fell 0.8 percent at 4 p.m. New York time, trimming its drop from 1.4 percent. The Stoxx Europe 600 Index sank 2.3 percent to a three-month low as gauges for eight nations, including Sweden, Germany, France and the Netherlands decreased 2.5 percent or more. The euro lost 0.5 percent versus the dollar and 1 percent against the yen. The cost of insuring against a European sovereign default climbed to the highest level in four weeks. The S&P GSCI Index of 24 raw materials slumped 0.3 percent. Treasuries rose a fourth day.

The difficulty in cutting budget deficits comes even as the debt of eurozone governments rose to 87.2 percent of gross domestic product in 2011, the highest since the euro was introduced in 1999, from 85.3 percent the previous year.

Weak economic data from the euro area on Monday also hurt market sentiment. Markit's composite index for the euro area fell to a five-month low of 47.4 in April from 49.1 in March, according to a flash estimate. The manufacturing PMI fell to 46.0 in April from 47.7 in March while the services PMI fell to 47.9 from 49.2.

In other economic reports among the major eurozone economies worst hit by the debt crisis, Spain's economy has been estimated by its central bank to have contracted 0.4 percent in the first quarter while Italy's consumer confidence index plunged to 89.0 in April, the lowest since the series began in 1996, from 96.3 in March. Also, Insee's index of French business confidence fell to 95 in April from 98 in March.

Elsewhere in the world, purchasing managers' data from China on Monday were a little more encouraging. A flash estimate of HSBC's China manufacturing PMI rose to 49.1 in April from 48.3 in March.

Japan provided some positive data on Monday. Its leading index rose for a second consecutive month to 96.3 percent in February from 94.6 in January but the February reading was revised down from a preliminary reading of 96.6. The coincident index, though, was revised up from a preliminary February reading of 93.7 to 95.0 and now show a rise from 94.1 in January.