Dire German debt auction rocks global markets

A dire German bond auction rocked markets overnight, with Japan’s Nikkei index hitting its lowest level since April 2009 as fears deepened over the eurozone crisis.

Japan’s leading index fell 1.8% to 8,165 , while the MSCI Asia Pacific dropped 0.5% to a seven-week low.

In the US, the Dow Jones closed 236 points or 2.05% lower at 11,257, while the S&P 500 fell 2.21% or 26 points to close at 1,161.

Banks led the S&P down after the Federal Reserve revealed its plans to stress test six banks against a global market shock such as contagion from the eurozone crisis.

Credit default swaps on Bank of America debt climbed as fears intensified over the stability of US banks in the face of the threat from Europe.

Meanwhile the FTSE 100 saw its longest losing streak in eight years as investors dumped shares on Europe concerns. London's leading share index closed down 1% or 53.08 points, at 5,153.7, dropping for the eighth day in a row.

However, London's leading index opened in positive territory on Thursday, adding just short of 30 points, or 0.5%, to 5,166.

The sell-off is the longest stretch of losses since January 2003, according to Bloomberg. The index has shed around 7% over the course of the eight days.

Yesterday's €6bn German government debt auction failed to attract bidders for the entire offer, selling just €3.644bn. Commentators called the sale the worst in recent memory.

The euro slid 1.2% following the result of the auction, but has managed to regain some ground ahead of the release of German business confidence data today.