U.S. stocks plunge as outlook in Europe dims

Fearing a financial rupture in Europe, investors around the world fled from risk Wednesday. They punished stocks and the euro, and the yield on a benchmark U.S. bond hit its lowest point since World War II.

In the United States, where concerns about Europe have already wiped out most of this year’s gains for stocks, major averages fell more than 1 percent. The Dow Jones industrial average was down as much as 184 points.

European stocks lost even more, and the euro dropped below $1.24, its lowest point since the summer of 2010.

“Everyone’s just afraid that if Europe doesn’t get its act together, there will be a big spillover in the U.S.,” said Peter Tchir, manager of the hedge fund TF Market Advisors.

He said the uncertainty over Europe’s future was reminiscent of the financial crisis in the fall of 2008, when it was briefly unclear whether banks would be bailed out and “we had these giant swings up and down.”

The trigger Wednesday was Spain, where the banking system is under strain a week after its fourth-largest lender required $23.8 billion in government aid to cover souring real estate loans.

Wall Street, which woke up to increased anxiety over higher Spanish borrowing rates, was down from the opening bell.

In the final half-hour of trading, the Dow was down 163 points at 12,416. The Dow has had a miserable May, losing more than 6 percent, and is on track for its first losing month since September.

The Standard & Poor’s 500 index lost 20 points to 1,312. The Nasdaq composite index fell 36 to 2,834.

Investors are increasingly worried that problems at the bank, Bankia, might recur at other Spanish banks. Many lent heavily during the nation’s real estate bubble. Losses from the real estate crash might be too big for Spain’s government to shoulder.

Spain has enacted harsh government spending cuts to bring its budget deficit within strict new European guidelines. But the country is in a recession and has 25 percent unemployment, and might need a bailout, like Greece, Ireland and Portugal.

On Wednesday, borrowing rates rose sharply for Spain and Italy, both seen as the next problem cases in a debt crisis that has rocked Europe for more than two years. Traders dumped bonds issued by those governments.

The yield on Spain’s 10-year bonds, a key indicator of market confidence in a country’s ability to pay down its debt, shot as high as 6.69 percent, the highest since the euro currency was launched in 2002.

Intense demand for low-risk, easily tradable securities led investors to buy U.S. government debt. The yield on the 10-year Treasury note to 1.62 percent, a big decline from 1.74 percent late Tuesday.

That appeared to be the lowest since 1945, said Bill O’Donnell, head of U.S. Treasury strategy at the Royal Bank of Scotland, citing data from the European Central Bank and other sources.

Story Continues →

View Entire Story

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Comments
blog comments powered by Disqus
TWT Video Picks