Stocks, euro slide on Greek scare, Hoenig speech

By Herbert Lash

NEW YORK (BestGrowthStock) – U.S. stocks (Read more about the stock market today. ) slid and the euro eased on Wednesday as Greece’s fiscal woes resurfaced and investors took flight after a top Federal Reserve official warned of the perils of keeping interest rates too low for too long.

Copper prices tumbled and U.S. oil futures ended lower, snapping six straight days of gains, on government data that showed crude stocks rose last week for the 10th week in a row to their highest level since last June. For details see: [nN07165677]

Much of the day’s sentiment was driven by nagging worries over Greece’s ability to resolve its fiscal problems, which helped fuel a safety bid for less risky U.S. government debt. Treasury prices also rose on record-setting demand at a $21 billion auction of 10-year notes.

Greece’s borrowing costs surged to a new high after the government said Greek banks had asked for billions of euros in support and euro zone states haggled over the conditions of potential bailout loans.

The spread between Greek government bond yields versus German Bunds blew out to record levels as skepticism grew over Greece’s ability to fund its debt at current levels.

“We thought progress was being made and the steps were being taken to get this resolved. Now that might be off track,” said Alan Lancz, president of Alan B. Lancz & Associates Inc, in Toledo, Ohio.

The strength of the Treasury auction had offset worries about Greece on Wall Street for most of the day, keeping the three major indexes little changed. But a speech by the president of the Kansas City Federal Reserve Bank, Thomas Hoenig, drove a late-day sell-off after he said a long period of low interest rates would encourage risky financial behavior.

The comments by Hoenig — the lone dissenter of a recent Fed decision to keep rates on hold — gave investors a reason to sell stocks after the recent rally in equities.

“It’s a short-term extended market that’s vulnerable to short-term pullbacks and this is what it’s using as the excuse,” said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.

Earlier in the day Fed Chairman Ben Bernanke said the U.S. economy still faces significant headwinds, suggesting he was in no rush to raise rates.

The Dow Jones industrial average (.DJI: ) closed down 72.47 points, or 0.66 percent, to 10,897.52. The Standard & Poor’s 500 Index (.SPX: ) shed 6.99 points, or 0.59 percent, to 1,182.45. The Nasdaq Composite Index (.IXIC: ) lost 5.65 points, or 0.23 percent, to 2,431.16.

Energy shares fell with the drop in crude oil prices.

MSCI’s all-country world index of global equities (.MIWD00000PUS: ) was off 0.1 percent, a decline offset somewhat by rising emerging market shares (.MSCIEF: ).

A downward revision to euro zone economic growth to zero from a previous reading of growth of 0.1 percent highlighted the fragility of the recovery in Europe.

The euro dropped against the dollar to its lowest level in more than a week, down 0.4 percent at $1.3353. Against the yen, the dollar fell 0.5 percent at 93.29 yen.

The benchmark 10-year U.S. Treasury note was up 24/32 in price to yield 3.86 percent.

U.S. light crude futures for May fell 96 cents, or 1.1 percent, to settle at $85.88 a barrel. An intraday low of $85.52 was hit in post-settlement trading as the U.S. stock market dropped to a late session low.

London ICE Brent fell 56 cents, or 0.65 percent, to settle at $85.59 a barrel.

Gold rose to its highest level in nearly three months, defying the stronger dollar, as a combination of fund buying, physical demand and technical support lifted the metal above $1,150 an ounce.

The June gold contract settled up $17 at $1,153 an ounce.

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(Reporting by Leah Schnurr, Wanfeng Zhou, Ellen Freilich and Gene Ramos in New York; Brian Gorman, Rebekah Curtis and William James in London; Writing by Herbert Lash; Editing by Leslie Adler)

Stocks, euro slide on Greek scare, Hoenig speech