LONDON: European stock markets and the euro turned sharply lower on Monday after Cyprus agreed to a deal that qualifies the eurozone member for a bailout -- but only after a radical downsizing of the island's financial sector.
Bank shares had rallied early on after the eurozone struck a deadline-day deal that keeps Cyprus from stumbling out of the single currency at least for now.
But in afternoon trading shares radically turned direction, brought lower when Eurogroup head Jeroen Dijsssebloem told the Financial Times and Reuters the hard-won agreement to liquidate a major Cypriot lender could become a model for other troubled corners of the eurozone.
"Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach," Dijsselbloem told the paper hours after the deal was reached.
"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on... The consequences may be that it's the end of story..." he said.
The blunt talk of leaving troubled banks to their fate sent shares into reverse with London's FTSE 100 index of leading companies ending the day down 0.22 percent to 6,378.38 points after having traded higher most of the day.
In Frankfurt, the DAX 30 slid 0.51 percent to 7,870.90 points, while in Paris the CAC 40 nosedived 1.12 percent to 3,727.98 points.
Debt crisis flashpoint Madrid also turned to the red, down 2.50 percent, and Milan slid 2.27 percent.
"Contrary to what was said last week, Cyprus is no longer a special case which is causing anxiety. We've created a precedent (with the bailout deal)," said Andrea Tueni of Saxo Bank in Paris.
The euro, after also rising early on, slid to its lowest level since November to $1.2830, though it recovered slightly to $1.2851 from $1.2986 in New York on Friday.
Gold prices fell to $1,599.25 an ounce from $1,607.75 Friday on the London Bullion Market.
German Finance Minister Wolfgang Schaeuble said that the bailout deal sealed Monday between eurozone nations and Cyprus would restore shaken faith in the debt-laden country and stabilise its economy.
"The result is a fair one for everybody involved," Schaeuble told a news conference. It will "help win back lost confidence" and shore up Cyprus' finances, he said.
Cyprus President Nicos Anastasiades battled for 12 hours overnight with his eurozone partners and the IMF to secure the deal.
In the end however, he let one banking chain go to the wall and left major investors in the island's biggest bank -- many of whom are Russian -- take a giant hit.
Under the terms of the agreement the island's second largest lender Laiki (Popular Bank) will be wound up, an operation Dijsselbloem said would deliver a 4.2-billion-euro ($5.5 bn) savings.
As the impact of the deal sank in and Dijsselbloem comments hit the wires, European banks went deep into negative territory, with BNP Paribas ending the session down 3.04 percent to 39.93 euros, Credit Agricole down 5.8 percent to 6.18 euros and Deutsche Bank down 1.61 percent to 31.88 euros.
US stocks also fell in midday trade, with the Dow Jones Industrial Average 0.73 percent lower, the broad-based S&P 500 down 0.48 percent and the tech-rich Nasdaq Composite Index slumping 0.72 percent.
<Center><b><i>Copyright AFP (Agence France-Presse), 2013</b></i></center>
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