Euro soars amid stock gloom

The euro has risen to its highest point against the dollar in almost a year and a half due to fears over the health of corporate America.

But those same fears have sent stock markets around the world spiralling lower.

Leading indexes, 1130 GMT

London's FTSE
-1.5%

France's Cac
-1.8%

Germany's Dax
-1.4%

US stocks extended the previous day's heavy losses on Wednesday, inspiring gloom across most European markets.

Analysts had been hoping that the outlook for companies would begin to pick up by the second half of the year as the US economic recovery gained pace.

But a recent string of disappointing corporate results has suggested that company profitability may not improve until well into next year.

Disappointing performance

Nokia, the world's largest mobile phone maker was among the companies issuing disappointing news on Wednesday, cutting its sales forecast for the latest three month period.

Telecoms stocks helped push European indexes lower, with the pan-European Stoxx 50 index falling 2.3% during morning trade.

At the moment we have got the worst of all worlds

Andrew Bell
Equity strategist

Traditional stocks such as oil and pharmaceutical firms were also sliding lower.

The UK's biggest drugs firm, GlaxoSmithKline, lost 2.5% after an earnings warning by US healthcare giant Abbot.

The loss helped push London's FTSE index 75 points lower to 4,858 just before midday.

"At the moment we have got the worst of all worlds," said Andrew Bell, European equity strategist at Carr Sheppards Crosthwaite.

"We are being regaled by stories of dubious accounting practices and we haven't yet got full sight of the earnings recovery that should come with an economic recovery," he said.

Expensive exports

The euro was trading at just over $0.95 on Wednesday morning.

It last traded at such a level back in January 2001.

The euro's gains against the dollar will make eurozone exports more expensive, and hence less competitive on dollar-denominated world markets.

But they will also keep eurozone inflation in check by curbing the price of imported goods, giving the European Central Bank more leeway to put off a widely expected increase in interest rates.

The euro has risen by 6.8% against the dollar so far this year.