World Stocks Drop On European Economy Concern

World stock markets fell Wednesday amid investor concern weak European spending will drag on global economic growth as the euro dropped to a fresh four-year low.

Traders are fearing the deep government spending cuts in some European countries that are part of a $1 trillion debt bailout package will weigh on the global economy just as it emerges from last year's recession. Meanwhile, a weaker euro will likely undermine European demand for imports.

"Even though the economic data out of the U.S. and Asia has been favorable, the risk of a double-dip is higher now than a month ago," said Lorraine Tan, director of equities research at Standard & Poor's in Singapore. "The market is looking ahead, and the longer the slide in the euro continues it's really going to hurt the global economy."

In early trading in Europe, Britain's FTSE 100 index fell 1 percent, Germany's DAX index dropped 0.7 percent, and France's CAC-40 sank 1.3 percent.

Japan's benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5 percent, to 10,186.84. South Korea's Kospi index lost 0.8 percent to 1,630.08 and Australia's S&P/ASX 200 index was off 1.9 percent at 4,387.10.

Benchmarks in Singapore, India and Indonesia all fell more than 1 percent and Hong Kong's Hang Seng index lost 1.8 percent to 19,583.22.

But some analysts are optimistic global growth will remain strong despite the crisis in Europe. Ethan Harris, head of North American economics at Bank of America Merrill Lynch, expects the fiscal austerity measures will only cut European gross domestic product growth by 0.5 percentage point this year and a bit more next year.

"That's a pebble in the pond for the global economy," Harris said in a speech in Singapore. "The bailout plan is credible and should ringfence Europe for the next three years."

Selling spread across Asia after the Dow Jones industrial average dropped 114.88 points, or 1.1 percent, to 10,510.95 after Germany said it planned to ban so-called naked short-selling of eurozone government debt and shares of major financial companies, a move that came as European officials seek to strengthen control of markets.

The euro, the currency shared by 16 European nations, has been driving global stock trading for weeks as investors interpreted its slide as a sign of continuing economic problems in Europe. It was trading up slightly at $1.2193 Wednesday after hitting a new four-year low of $1.2146 earlier in the session.

Benchmark crude for June delivery was down $1.06 to $68.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 54 cents to settle at $69.41 on Tuesday.