World stocks crumble on EU worries

By Al Yoon

NEW YORK (BestGrowthStock) – Global stocks and the euro tumbled on Tuesday amid fears that European Union officials will not be able to stop Greece’s sovereign debt crisis from spreading around the region.

The premium that investors demand to buy bonds from other debt-laden European nations such as Spain and Portugal rose despite a hefty Greek aid package from the European Union and the International Monetary Fund.

The single currency that binds 16 nations hit its lowest level in a year.

World stocks as measured by MSCI (.MIWD00000PUS: ) fell 2.5 percent, dragged down by losses for most indices across Europe and the United States.

Investor skepticism about the efficacy and implementation of the 110 billion euro ($146 billion) bailout intensified on equity markets that were buoyed on Monday by signs of global growth.

The rejection of some euro nations’ debts could slow the recovery that has fueled a strong equities rebound since March 2009.

In exchange for aid, Athens has promised spending cuts and tax increases worth 30 billion euros over three years, on top of belt-tightening measures already taken. The key to ending the crisis is whether Greece can meet budget deficit targets, a Moody’s Investors Service official said.

“There is no faith in what the EU and IMF have proposed for Greece,” said Dean Popplewell, chief currency strategist at OANDA, a foreign exchange brokerage in Toronto. “Capital markets are betting on a Greek default.”

U.S. shares slid steeply, echoing drops in Europe that fully erased 2010 gains for a key index there.

The Dow Jones industrial average (.DJI: ) swooned 225.06 points, or 2.02 percent, to 10,926.77. The Standard & Poor’s 500 Index (.SPX: ) lost 28.66 points, or 2.38 percent, to 1,173.60 and the Nasdaq Composite Index (.IXIC: ) dropped 74.49 points, or 2.98 percent, to 2,424.25.

Europe’s FTSEurofirst 300 (.FTEU3: ) was off 3 percent to 1,033.18. Germany’s DAX (.DAX: ) was down 2.6 percent, while Spain’s IBEX 35 (.IBEX: ) dropped 5.4 percent. Japan’s Nikkei 225 (.N225: ) rose 1.2 percent.


The euro plummeted to a one-year low beneath $1.30 amid worry that the financial drubbing endured by Greece will spread to other countries that use the currency. Late in New York, the euro traded at $1.2991, down 1.52 percent.

Against the Japanese yen, the dollar edged lower by 0.11 percent to 94.44. The U.S. Dollar Index (.DXY: ) rose 1.31 percent to 83.35.

Investment advisers at RGE suggested that clients build short positions on the euro on any sign of strength.

“We believe the Greek crisis is only the tip of the iceberg,” RGE said. “The debt sustainability problems in other euro zone countries are equally serious while the macroeconomic limitations are often more severe than in Greece.”

Spanish Prime Minister Jose Luis Rodriguez Zapatero on Tuesday pointed to indications that the nation has emerged from recession, and said that data due on May 12 would bear that out. He discounted dismal views from financial markets, denied that his nation needed help and noted that Spain has lower debt to gross domestic product than the European average.

Still, euro zone fiscal worries overshadowed signs of global recovery. U.S. stocks (Read more about the stock market today. ) staged a broad rally on Monday that drove the S&P 500 to its best day in two months after manufacturing, consumer spending and construction data all instilled confidence in economic recovery.

Investors ignored U.S. data on Tuesday showing pending sales of previously owned homes hit a five-month high in March and that factory orders rose unexpectedly.

Strong U.S. data reinforced views that the U.S. Federal Reserve could raise interest rates this year. Europe’s debt woes are likely to keep euro zone rates on hold in 2010.

Benchmark government bonds from the euro zone’s core and U.S. Treasuries gained as investors sought safer assets.

Ten-year euro zone government debt yields declined 0.1 percentage point to 2.97 percent, and benchmark 10-year U.S. Treasury note yields fell to 3.60 percent from 3.69 percent.

Spreads between benchmark German Bunds and Portuguese and Italian bonds widened, while the cost of insuring against a Greek default rose.

In energy and commodity trading, U.S. light sweet crude oil fell $3.61, or 4.19 percent, to $82.58 per barrel, and spot gold fell $10.25, or 0.87 percent, to $1171.60.

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(Additional reporting by Jessica Mortimer in London, Nigel Davies in Brussels and Steven C. Johnson in New York; Editing by Dan Grebler)

World stocks crumble on EU worries