NEW YORK (AP) — Escalating protests in Egypt jarred world financial markets Friday. Stocks fell while the dollar, Treasurys and gold rose as investors sought to reduce their exposure to risk.
The Egyptian government's response to escalating street protests unnerved investors. The military was deployed in an effort to restore order and the headquarters of the ruling party was on fire. Thousands of people defied a curfew, and Internet and cell phone service has been cut off.
Earlier, riot police fired tear gas, rubber bullets and used water cannons to disperse crowds that had gathered in the largest challenge to Egyptian president Hosni Mubarak's thirty-year rule. Investors have been concerned that the collapse of the Tunisian government Jan. 14 could lead to challenges to other authoritarian governments in the Middle East.
"The safety trade is back," said Jeffrey Frankel, president of broker Stuart Frankel & Co. "Gold is up. Oil is up. Anything related to overseas is getting hit."
Prices of Treasury bonds, considered one of the safest assets, rose sharply. The yield on the benchmark 10-year Treasury note fell to 3.32 percent from 3.38 percent late Thursday. Bond yields fall when their prices rise.
The dollar rose 0.6 percent against an index of six other currencies as investors sought safety. Gold rose 1.6 percent to $1,339.50 and crude oil rose 4.4 percent to $89.42 a barrel.
The Egyptian stock market was closed for a holiday. It fell 10.5 percent Thursday.
The MSCI World Market index, the broadest measure of the world's stock markets, slumped 1.3 percent.
"Traders are watching this flare-up in the Middle East and using it as a reason to take profits," said Doug Godine, managing director at Signal Hill, an investment bank. Prior to this week, the Dow Jones industrial average had been up for eight straight weeks.
Disappointing earnings reports also helped send stocks lower. Ford Motor Co sank 12 percent after its earnings fell short of Wall Street's projections. Amazon.com Inc. fell 8.5 percent after reporting that higher costs cut down its profit margins. Microsoft Corp. lost 4 percent after it said that the profitability of its Windows division was falling.
The Dow Jones industrial average fell 138 points, or 1.2 percent, to 11,852 in afternoon trading.
The Standard & Poor's 500 index fell 18, or 1.4 percent, to 1,281. All 10 company groups that make up the S&P index fell.
The Nasdaq composite index fell 61, or 2.2 percent, to 2,694. The index was not updated nearly an hour after the market opened due to technical problems.
A lower than expected report on the U.S. economy helped lead to a market sell-off as well. The Commerce Department reported that U.S. gross domestic product grew at an annual rate of 3.2 percent between October and December. That was below the 3.5 percent that analysts had forecast.
Sara Lee Corp. fell 2.2 percent after announcing a plan to split into two companies. One, a food and retail business, will keep the Sara Lee name and also operate the Jimmy Dean and Hillshire Farms businesses. The other, which has yet to be named, will hold the current company's beverages and baked goods lines. The company had considered selling the whole business but was unable to get a satisfactory price for it.