10/03/2011 02:18 EDT | Updated 12/02/2011 05:12 EST

Asian stock markets slump as Europe shows signs of worsening debt turmoil

LONDON - Stocks took a battering Monday after Greece admitted it won't meet its deficit reduction targets, raising renewed fears that the country will not get crucial bailout loans it needs to avoid a default on its debts.

On Sunday, Greece's finance ministry said the deficit this year will likely be 8.5 per cent of gross domestic product, higher than the 7.8 per cent previously anticipated. The ministry blamed a deeper-than-expected recession for the failure to meet the target. The Greek economy is expected to shrink by a further 5.5 per cent this year as against the previous forecast of 3.8 per cent.

The revelation that Greece is finding it increasingly difficult to reduce its borrowings in spite of all its austerity measures has raised fears that its international creditors will effectively pull the plug.

Greece has been reliant since May 2010 on regular payouts of loans from a €110 billion ($150 billion) bailout from other eurozone countries and the International Monetary Fund. It was granted a second €109 billion package in July, but details of that deal remain to be worked out.

Under the terms of the first bailout, Greece has to achieve certain targets in order to get the cash it needs to pay off its bondholders and also afford salaries and benefits. Representatives of the so-called troika — the European Commission, European Central Bank and IMF — are currently in Athens trying to assess whether Greece has done enough to get its hands on the next batch of bailout cash. Without the €8 billion ($10.8 billion), Greece has said it won't be able to pay all its bills from the middle of October.

Finance ministers from the 17 euro countries, including Greece's Evangelos Venizelos, are due to meet later in Luxembourg, to assess the latest Greek developments and the progress made so far in enacting legislation to beef up a bailout facility. So far 14 of the 17 euro countries have ratified the changes, with Malta and the Netherlands due to vote this week. A vote in Slovakia has yet to be pencilled in.

"Greece continues to be the major source of market angst as we head into the final quarter of 2011," said Michael Hewson, market analyst at CMC Markets. "Today's meeting of finance ministers will continue to delay the inevitable and look at ways and means of avoiding a Greek default."

In Europe, Germany's DAX was down 3.3 per cent at 5,321 while the CAC-40 in France fell 2.6 per cent to 2,906. The FTSE 100 index of leading British shares was 2.1 per cent lower at 5,018.

The losses in Europe followed a big retreat in Asia, with Hong Kong's Hang Seng leading the way lower with a 4.5 per cent decline to 16,798. Japan's Nikkei fell 1.8 per cent to 8,545.48 even after a government survey showing an improvement in business confidence among Japanese manufacturers.

Meanwhile China's main index in Shanghai declined 0.3 per cent to 2,359.

Wall Street is also expected to open sharply lower later — Dow futures were down 2.2 per cent to 10,860 while the broader Standard & Poor's 500 futures fell 2.5 per cent to 1,127.

Worries over Greece were also taking their toll on the euro, which was trading 0.3 per cent lower at $1.3359.

As if Greek jitters weren't enough, there's a lot of potential news this week that could affect the market mood. A raft of U.S. economic data kicks off later with the monthly manufacturing survey from the Institute for Supply Management. A collapse in its main indicator in August was one of the triggers behind the turmoil that has gripped financial markets since.

The U.S. dataflow this week culminates with Friday's nonfarm payrolls report for September. The figures often set the tone in markets for a week or two after their release and another weak number could well reinforce concerns over the world's largest economy.

Central banks in Europe will also feature, with both the European Central Bank and the Bank of England under pressure to do more to boost growth.

Though inflation in both the eurozone and Britain are running uncomfortably above target, investors will be looking to see if the ECB reverses course and starts cutting rates, just two months after raising them, and if the Bank of England authorizes another monetary stimulus.

Oil prices tracked equities lower — benchmark oil for November delivery was down $1.37 to $77.83 per barrel in electronic trading on the New York Mercantile Exchange.


Pamela Sampson in Bangkok contributed to this report.