Japan Stocks Drop as Sarkozy, Merkel Reject Bigger Bailout Plan

Paris - France and Germany unveiled far-reaching plans on Tuesday for closer euro zone integration and said joint euro bonds may be a longer-term option, leaving the currency area vulnerable to more attacks from traders.


Under heavy pressure to restore confidence in the euro zone following a dramatic market slump, President Nicolas Sarkozy and Chancellor Angela Merkel stopped short of increasing the bloc's rescue fund but vowed to stand side-by-side in defending the euro and laid the groundwork for future fiscal union.


Their message was that the focus should be on further economic integration rather than signing bailout checks, and suggested that straying from euro zone rules and fiscal targets would no longer be tolerated.


"We have exactly the same position on euro bonds," Sarkozy told a joint news conference with Merkel after their talks.


"Euro bonds can be imagined one day, but at the end of the European integration process, not at the beginning."


But many experts said the measures would fail to assuage markets, which believe a common bond is the only way to ensure affordable financing for euro zone members struggling with debt.


U.S. stocks dropped more than 1 percent and the euro slid as the


Toyota Motor Corp., the world’s largest carmaker, lost 1.4 percent. Sony Corp., Japan’s biggest exporter of consumer electronics, dropped 1.9 percent after talks in Paris yesterday between French President Nicolas Sarkozy and German Chancellor Angela Merkel. Inpex Corp., Japan’s No. 1 energy exploration company, declined 2.3 percent on lower crude prices.


The Nikkei 225 Stock Average fell 0.8 percent to 9,039.47 as of 9:31 a.m. in Tokyo. The broader Topix index dropped 0.5 percent to 774.98 with three stocks retreating for every two that rose.


The Paris meeting “confirmed debt issues cannot be resolved in a short period of time,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.


Futures on the Standard & Poor’s 500 Index slid 0.4 percent today. In New York, the index fell 1 percent to 1,192.76 yesterday as the German and French leaders rejected selling euro bonds and expanding the 440 billion-euro ($633 billion) rescue fund. The leaders also proposed resubmitting a financial- transaction tax that was rejected in 2010.


Gross domestic product in the 17-nation euro area expanded 0.2 percent in the second quarter from the previous three months, when the economy grew 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement yesterday. That’s the weakest growth since the euro region emerged from a recession in late 2009 and was less that the 0.3 percent median estimate of 34 economists in a Bloomberg News survey.


In the U.S., housing starts fell 1.5 percent in July from June, the Commerce Department reported yesterday. Building permits, a proxy for future construction, also dropped.


“The U.S. housing numbers were not strong, and that signals a slowdown in the U.S. economy may persist,” Nishi said.


Exporters declined after reports showed economic growth in Europe and the U.S. is slowing, hurting the outlook for overseas earnings. Sony slumped 1.9 percent to 1,668 yen. Toyota lost 1.4 percent to 2,860 yen. Honda Motor Co., Japan’s third-largest carmaker, sank 2.3 percent to 2,556 yen.


Mining companies dropped on lower oil prices. Inpex lost 2.3 percent to 514,000 yen. Japan Petroleum Exploration Co., the second-biggest oil driller, slid 0.8 percent to 3,330 yen.


Crude oil for September delivery declined 1.4 percent to settle at $86.65 a barrel in New York yesterday. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum dropped 0.5 percent.