European stocks slide on Cyprus tensions

European stock markets have mostly risen and the euro has recovered from four-month lows. Source: AAP

EUROPEAN stock markets retreated and the euro dropped under $US1.28 for the first time in fourth months owing to concerns about fallout from the Cyprus financial bailout, analysts said.

London's FTSE 100 index of leading companies fell 0.57 per cent to stand at 6362.96 points in late Wednesday morning deals, as Frankfurt's DAX 30 shed 0.89 per cent to 7809.71 points and in Paris the CAC 40 slumped 1.30 per cent to 3699.78.

Madrid tumbled 1.93 per cent and Milan lost 1.56 per cent.

Italian borrowing rates fell slightly in a 10-year debt auction on Wednesday, despite concerns over a political deadlock in the recession-hit country following inconclusive elections.

Stock indices were falling "as the ongoing issues in Cyprus continue to weigh on sentiment," said Alpari trading group analyst Craig Erlam.

In foreign exchange deals, the euro dropped to $1.2782 - the lowest level since November 21 - and compared with $1.2861 late in New York on Tuesday.

Gold prices slipped to $US1592.25 ($A1525.36) an ounce from $1598 Tuesday on the London Bullion Market.

The foreign exchange market "is concerned about medium-term contagion effects" of the Cyprus bailout, said Commerzbank analyst Thu Lan Nguyen.

Troubled eurozone nation Cyprus on Wednesday scrambled to finalise capital controls to avert a run on banks, a day before they are due to reopen after a nearly two-week lockdown while the island secured a huge bailout.

Meanwhile there are fears that the controversial terms of the bailout could be mirrored in any future financial rescues of indebted eurozone members.

Nicosia overnight on Sunday-Monday agreed a last-minute deal with its international lenders that will see it receive a $13 billion rescue package to help pay its bills.

And while the decision to tax bank savings above 100,000 euros ($A123,540) raised fears of a similar move in future rescues - reinforced by comments from the head of the Eurogroup of finance ministers - officials have since insisted that Cyprus is a special case.

"The negative sentiment is also enhanced by rumours that this format will be adopted as a template for any further bailout schemes," said Currencies Direct trader Amir Khan.

"Although top officials deny any such move in the future, markets are still wary that this format will leave the banks with fewer deposits and in turn will allow them to lend less, shrinking growth."

Elsewhere on Wednesday, in indebted eurozone member Italy, the government raised three billion euros in bonds due to mature in 2023 at a rate of 4.66 per cent, compared with 4.83 per cent at the last similar auction on February 27.

Italy also raised 3.91 billion euros in five-year bonds at a rate of 3.65 per cent, slightly higher than the 3.59 per cent level in the previous comparable sale.

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