European stocks give up gains as pessimism reigns

European stock markets gave back early gains Thursday as sentiment continued to be hit by concerns about the continent's debt crisis and a seeming lack of political cooperation in addressing it.

In Europe, the FTSE 100 index of leading British shares was down 62.78 points, or 1.2 percent, at 5,095.30 while Germany's DAX slid 106.16 points, or 1.8 percent, to 5,882.51. The CAC-40 in France was 66.36 points, or 1.9 percent, lower at 3,445.31.

Things aren't expected to get any better when Wall Street opens shortly _ Dow futures dropped 134 points, or 1.3 percent, to 10,271 while the broader Standard & Poor's 500 futures slid 16.6 points, or 1.5 percent, to 1,093.30.

Earlier, European stocks had steadied following triple-digit point declines on Wednesday but investor worries about the debt crisis were never far from the surface _ on Wednesday, stocks around the world took a hammering after Germany's regulator said it was banning so-called naked short-selling of eurozone government bonds and shares in ten key German financial institutions until March 31.

In a typical short sale, a trader sells borrowed shares in hopes of buying them cheaper later and profiting on the difference. A "naked" short is when traders sell shares without borrowing them first. It's one way of betting a financial asset will fall in value.

Investors were unsettled partly because Germany's move against the practice was unilateral without any consultation with its partners in the eurozone, and suggested to some an uncoordinated policy response.

"Investor sentiment remains shaky amid intensifying talk about financial regulation," said UBS analyst Geoffrey Yu.

"The question of EU unity following Germany's unilateral naked short-selling ban has investors particularly on edge, along with concerns on the sustainability of the European rescue package and the potential dampening effect that fiscal tightening could have on global growth," Yu added.

In the currency markets, the euro was down 0.6 percent on the day at $1.2350. However, that's still way up from the four-year low of $1.2146 recorded Wednesday in the wake of the German ban.

David Buik, markets analyst at BGC Partners, said currency traders have banked their profits and are now awaiting developments, "either further political blunders or full-on evidence that austerity packages really have been implemented and that the situation really has improved."

Earlier, Asian stock markets dropped in the wake of Wednesday's declines in Europe and the U.S. Renewed tensions between North Korea and South Korea did not help nor did unrest on the streets of Bangkok.

Japan's benchmark Nikkei 225 stock average dropped 1.5 percent to 10,030.31 after the government said the economy grew 4.9 percent in the first quarter, less than analysts expected. Australia's main index fell 1.6 percent to 4316.50 while shares in Shanghai, Hong Kong and Indonesia also fell.

Singapore's benchmark index fell 0.8 percent despite strong first quarter economic growth. The government said Thursday that Singapore's gross domestic product jumped 16 percent from a year earlier.

South Korea's Kospi index fell 1.8 percent to 1,600.18 after the government announced that an investigation showed overwhelmingly that North Korea fired a torpedo that sank the Cheonan warship and killed 46 sailors. North Korea has denied involvement in the sinking and vowed Thursday to wage "all-out war" if punished for the sinking of the ship.

Thailand's stock market was closed Thursday after a confrontation between the army and anti-government protesters sparked rioting and arson in Bangkok. The exchange was one of the building's torched by rioters but damage was largely limited to its ground floor.

Benchmark crude for June delivery was down $1.58 to $68.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 46 cents to settle at $69.87 on Wednesday after dropping earlier in the session to $67.90, the lowest since September.

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Associated Press Writer Alex Kennedy in Singapore contributed to this report.