BEIRUT: To the tiny Eastern Mediterranean country, foreign influence has an even greater impact on the financial market than it does on politics. As global markets are rattled by the unraveling European debt crisis and by U.S. economic distress, Beirut stocks are ailing.

The BLOM Stock Index closed the week down 1.26 percent at 1,271.3 points after Germany’s representative at the European Central Bank resigned Friday, throwing into question the cohesiveness of the eurozone and the credibility of the ECB’s management of the debt crisis.

“I expect stocks to take their cues from U.S. markets next week as well, namely 9/11 events and employment data, as well as from European markets,” Dr. Louis Hobeika, economics professor at Notre Dame University told The Daily Star in an interview.

The U.S. economic calendar for the coming week includes significant data releases such as retail sales, inflation, initial claims, industrial production, and the Philly Fed survey.

A sloppy U.S. economy and rising jobless claims continue to cast a shadow over the health of the global economy, with fears reverberating to the Beirut Stock Exchange, where virtually all major listed stocks sunk during the week.

Lebanon’s three biggest banks were especially out of favor as Byblos, BLOM GDR, and AUDI GDR tumbled 4.1 percent, 4 percent, and 2.52 percent respectively by close of trading on Friday. Solidere, the exchange’s largest stock, endured the same misfortune, as its Class A and B shares fell 1.85 percent and 0.57 percent to close the week at $15.62 and $15.42 respectively.

And the new week is only expected to bring more sorrow to investors still holding on to their shares.

“I cannot see why things would change next week. I expect stocks to remain the same or even drop further,” predicted Hobeika.

However, the dismal performance by the exchange’s heavyweight stocks overshadowed an encouraging positive trend by the rising mid and small-cap stars. In particular, during the week, Bank of Beirut entered the league of billionaires after its market capitalization crossed $1 billion for the first time in its trading history.

The bank, which expanded its balance sheet by a hefty 26 percent year-over-year at the end of the first half of 2011, has been attracting increasing investor interest, and rising volumes have handed investors a 7.5 percent year-to-date appreciation in the stock price, including 3.9 percent during the week ending Sept. 9.

Smaller traded names such as Ciments Blancs Bearer added 9.43 percent during the week, although analysts are wary about deriving conclusions from the meager liquidity of such stocks.

“Some stocks could rise and fall quickly given the low liquidity of the BSE. These moves are typically insignificant,” said Hobeika.

Ravaged international equity markets and rising Syrian tensions have also stolen the limelight from domestic politics as Beirut stocks didn’t blink at the positive political surprise from Cabinet’s consensual approval of the thorny electricity bill.

“It is very difficult for investors to take positive cues from the electricity agreement because regional and international events are not encouraging,” explained Hobeika.

As a result, despite BSE stocks providing an attractive long-term proposition from their multi-year lows, foreign markets are expected to continue to guide the tiny bourse. “Investors may not want to allocate more money to long-term investments especially when the long-term outlook in the U.S. is not too positive,” said Hobeika,