Europe Stocks Mauled by China, Greek Worries; DAX logs Worst Week in 3 Years

European stocks dropped sharply on Friday, pulling lower along with other global markets, with traders attributing the moves to changes in Chinese trading rules.

Heightened worries about a default by Greece also contributed to the dark mood on the financial markets. Friday’s hefty losses drove European indexes deeper into the red for the week. Germany’s DAX 30 DAX, -2.58% logged its worst week since November 2011, with 5.5% decline.

The Stoxx Europe 600 SXXP, -1.76% on Friday fell 1.8% to 403.69, led by nearly 2% fall for the basic materials group. The Stoxx 600 ended the week down 2.2%, the biggest such fall since December.

European equities began tumbling in late-morning trade, along with U.S. stock futures, after heavy selling in futures tied to Chinese stocks. The drops came after the Securities Association of China said fund managers may lend shares for short selling, and will also expand the number of stocks investors can short sell.

At the same time on Friday, the China Securities Regulatory Commission “banned the margin trading business of brokerages from taking part in umbrella trusts,” Bloomberg News reported.

As for the ban, “any sort of regulation for the market, particularly one that so buoyant like that in China, is never seen as a good thing as it’s literally a physical impact on the kind of trading that can be done. The actual trading itself is getting limited, potentially,” said Jasper Lawler, market analyst at CMC Markets.

The moves in China come as Chinese stocks have rallied this year. The Shanghai Composite SHCOMP, +2.20% is up 32%, and Hong Kong’s Hang Seng Index HSI, -0.31% has gained 17%.

Mining companies are sensitive to moves made in China, a key buyer of metals and other commodities. The U.K.’s FTSE 100 UKX, -0.93% was pushed 1% lower to 6,990.26, with mining giants Rio Tinto PLC RIO, -1.44% RIO, -1.01% RIO, -1.40% and BHP Billiton PLC BLT, -1.60% down 1.4% and 1.6%, respectively.

France’s CAC 40 PX1, -1.55% fell 1.6% to 5,143.26 on Friday, closing the week down 1.9%.

DAX and Athens: Germany’s DAX DAX, -2.58% on Friday was shoved down 2.6% to 11,688.70. Before the Chinese-stocks news, the DAX had already been moving toward its first weekly loss in four weeks.

Concerns about Greece’s debt troubles has hurt risk sentiment, and in turn has pressured the DAX, said Fawad Razaqzada, technical analyst at As well, gains this week for the euro EURUSD, +0.42% “has weighed on German exporters and that has eroded their attractiveness. That’s given investors a reason to take profit from these repeated record levels we’ve seen in the past few months.”

The DAX on April 10 hit a record closing high of 12,374.73. The euro has moved back above $1.07 against the dollar following a round of weak U.S. economic data.

Meanwhile, the yield on the 10-year German bond TMBMKDE-10Y, -7.05% on Friday slipped 1 basis point to 0.7%.

Greece’s Athex Composite GD, -3.00% turned lower on Friday, falling 3% to 729.81. Stocks finished down nearly 6% for the week. Also this week, Greek bond yields rallied as prices fell, and borrowing costs on government bonds jumped back to levels not seen since 2012.

There have been no signs of progress in negotiations over Greece’s bailout, suggesting Greece and its creditors won’t strike an agreement regarding Greek economic reforms before the April 24 Eurogroup meeting. Pierre Moscovici, the European commissioner for economic and financial affairs, told the Financial Times that Greece needs to agree to reforms by May 11.

Elsewhere, the pound GBPUSD, +0.19% traded above $1.50 on Friday after data from the Office for National Statistics showed average weekly pay rose 1.7% in February. The jobless rate fell to 5.6%, from 5.7%, the lowest level since mid-2008.

The U.K.’s FTSE 100 UKX, -0.93% turned lower, losing 0.9% to 6,993.34.

Source: MarketWatch