European equities drop, London hit by recession threat

European stock markets slid Wednesday, erasing earlier gains, as investors digested news that Britain was dangerously close to recession and tracked ongoing woes over the eurozone debt crisis. In midday trade, London's benchmark FTSE 100 index of top shares retreated 0.60 percent to 5,717.18 points, Frankfurt's DAX 30 index dropped 0.66 percent to 6,377.10 points and the Paris CAC 40 lost 0.82 percent to 3,295.36. The European single currency dipped to $1.2962 from $1.3030 late in New York on Tuesday. "Early gains for the FTSE 100 were wiped off the slate after figures showed that the UK economy shrank by more than expected during the final quarter of 2011," said IG Index analyst Chris Beauchamp. The British economy shrank by a worse-than-expected 0.2 percent in the fourth quarter, data showed Wednesday, placing it close to recession as activity is hit by the eurozone crisis and state austerity. The decline was driven by weakness in the production and construction sectors, and was worse than market expectations for a 0.1-percent contraction. Economists warn this is likely to be followed by a decline in the current first quarter of 2012, which would place Britain back in recession -- defined by two successive quarters of contraction. First quarter data is due in April. Meanwhile in Europe, investors remain on edge over ongoing Greek debt talks and persistent worries over the region's fiscal troubles. In gloomy news on Tuesday, the International Monetary Fund (IMF) slashed its forecasts for global growth and warned of a deeper downturn if Europe doesn't take stronger action to stem its raging debt crisis. "In Europe, the same concerns about Greece continue to gnaw away at sentiment, while the IMF growth downgrades haven't helped either," said CMC Markets analyst Michael Hewson. IMF chief Christine Lagarde said Wednesday that public creditors would need to pitch in and help Greece if private banks did not agree to a sufficient cut in money owed to them. If private creditors did not successfully renegotiate a debt writedown with Greece, then "public creditors ... will also have to contribute to the financial effort," Lagarde told reporters in Paris. Largarde spoke following a report in Wednesday's edition of the Financial Times that said the IMF was pressing the European Central Bank to forego potential profits on the 40 billion euros ($52 billion) in Greek debt it holds. She did not comment directly on the report, and said that "the IMF is only an observer within the framework of the negotiations between the private sector and Greek debtors." Markets remain hopeful that Greece will strike an agreement with creditors at this weekend's European Union leaders summit, despite an overnight standoff on the troubled country's debt-reduction talks. Across in Asia on Wednesday, stock markets rose following the upbeat earnings news from US giant Apple and on hopes that Greece could agree on a debt-reduction deal with creditors some time soon. Apple said late Tuesday its net profit more than doubled in the period from October to December, to a record $13.06 billion, driven by strong sales of iPhones, iPads and Macintosh computers. Tokyo and Sydney closed up 1.12 percent on Wednesday and Seoul gained 0.12 percent. Financial markets in Hong Kong, Shanghai and Taipei were closed for a public holiday.