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European markets follow Asian slump

  • Story Highlights
  • European stock markets sink around 2 percent in morning trading Tuesday
  • Declines follow slump in Asia with Tokyo Nikkei slipping 5 percent
  • Global financial slowdown cuts deeply into demand for Japanese goods
  • Wall Street tumbled Monday on fears of possible Citigroup-Morgan Stanley deal
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(CNN) -- European markets slipped solidly into negative territory Tuesday, adding to a string of selloffs since the start of the year.

London was off 1.8 percent in midday trading, while Paris and Frankfurt were more than 2 percent lower.

The story was similar across Asia, where Tokyo's Nikkei average gave up nearly 5 percent of its value after new government figures showed a dramatic decline in Japan's international trade.

Japan's Finance Ministry announced that the nation's leading trade gauge had dropped by two-thirds in November. Tokyo's current account surplus was down 66 percent from November 2007, the ninth straight month the number has dropped.

The global financial slowdown has cut deeply into demand for Japanese goods.

In Australia, the All Ordinaries index closed 0.8 percent lower, while the Seoul's KOSPI gained nearly a percent. In Hong Kong, the Hang Seng was down 2.2 percent.

Stocks tumbled on Wall Street Monday, dragged down by concerns about Citigroup's potential deal with Morgan Stanley -- and the start of the fourth-quarter earnings reporting period.

The Dow Jones industrial average lost 125 points, 1.5 percent, to close at 8474. The Standard & Poor's 500 index shed 2.3 percent and the Nasdaq composite slid 2.1 percent.

U.S. stocks, as measured by the S&P 500, had risen roughly 20 percent from the bear market lows of late November. But fourth-quarter earnings are anticipated to be pretty dismal across the board, with companies struggling amid the recession.

The rally was probably a little too much, a little too quickly, and now investors are experiencing a little buyer's remorse, said Greg Church, founder and president at Church Capital.

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"Earnings are going to be a disaster and I think the Citigroup story is having an impact too, since it brings the focus back to the financials," he said.

Citigroup is reportedly in talks with Morgan Stanley to sell a majority stake in its Smith Barney brokerage unit as a means of raising cash. Citigroup shares fell 17 percent Monday, while Morgan shares fell 1 percent.

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