Greater London, England -- (SBWIRE) -- 04/29/2011 -- European indices fell sharply on Monday as traders escaped risky investment classes such as stocks and sought safe haven assets such as the US dollar and gold as debt issues came to the forefront of trader minds.

Sovereign debt problems surround Greece, where question marks remain over a potential debt restructuring, and Portugal, where talks have taken place today on the terms of the expected bailout for the indebted nation.

However it was the announcement from ratings agency Standard & Poor to revise its outlook on the US to negative which sent markets into an afternoon freefall. The change in outlook is largely weighed behind concerns over the huge budget deficit and lack of clarity surrounding solutions to this problem. If anything, the ratings agency is probably only stating officially what many in the market are already thinking. Whether or not this is likely to herald a wider move to risk aversion than the short-term move we have already started to witness remains to be seen.

If you look at the market’s reaction today, you have the FTSE VIX rallying 27%, equities being sold off and gold hitting a new record high of $1497 per ounce. This tells a story of risk aversion triggered by continued concerns over European sovereign debt and this has only deteriorated further by the move by S&P to revise its outlook on the US to negative.

It is the miners and banks, as one might expect, that have been hit hardest by today’s risk aversion. Both sectors have suffered falls of over 2.5% today but it is the miners who have been hit hardest over the last week, with the sector falling nearly 10%, whilst the banking sector has suffered an equally heavy 5% fall.

The FTSE 100 immediately broke through some early support levels to help quicken the pace of today’s falls and a close below the 5850 level could open up more weakness in the near term. The willingness of investors to buy back into price dips has helped Indices make quick recoveries from sharp price falls and yet again it is this desire that is going to be tested this week. Though with sovereign debt fears weighing, oil prices remaining stubbornly high and with investors perhaps starting to whisper the seasonal rhyme ‘sell in May and go away’, this may sap investors’ appetite to continue to buy into price dips.

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