"Greece fears and UK data put markets into tailspin"

Panic over a nightmare Greek default gripped global stock markets today as dire news from Britain's manufacturers threatened to derail the recovery.

Premier George Panpandreou's shock decision to put Greece's latest bailout to a referendum triggered fears that the beleaguered nation could default and crash out of the euro if the deal is rejected by the people.

The potential collapse of the rescue sent markets into a tailspin with London's FTSE 100 benchmark falling 2.8%, and France's CAC 40 and Germany's Dax both tumbling by 4%. The news came as data showed the UK achieved growth of 0.5% between July and September. However, the figures also revealed the biggest slump in manufacturing for more than two years, stoking fears that the UK's fragile recovery could crash again in the final quarter of the year.

European leaders agreed a second €130 billion (£112 billion) bailout for Greece ¬- including a 50% hit for private bond investors - last week. But the bailout also spells more pain for the hard-pressed population and a recent poll signalled some 60% of Greeks could spurn the deal in what will effectively become a referendum on their membership of the single currency.Greece is already dependent on funds from the 'troika' of the European Central Bank, IMF and European Union to prevent a catastrophic default.

If the nation votes no, Citigroup analyst Jurgen Michels warned: "Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure.

"As Greek banks would run out of collateral, they would also lose the funding of the ECB. As a consequence, Greece would probably be forced to leave the Monetary Union."

The fresh eurozone chaos sent the borrowing costs of debt-laden Italy soaring to fresh records today, triggering more bond-buying from the ECB.
The impact of the crisis was felt again by British manufacturers in October, according to the Chartered Institute for Purchasing and Supply's latest survey. The index, where a score over 50 indicates growth, plunged to 47.4 as new orders shrank at their fastest pace since March 2009 and export orders shrank for the third month in a row.

Markit chief economist Chris Williamson warned of aggressive job cutting from manufacturers to come as fears over Italy and a Greek referendum intensify Europe's woes. He said: "The UK economy faces a significant risk of contracting in the final quarter of the year."

Courtesy of London Evening Standard