Global stocks slid, dragging European shares to the biggest two-day loss since 2008, and oil fell amid growing concern the economic recovery is faltering.
The euro rose against the dollar amid speculation the region may start joint bond sales to contain the debt crisis.
The Standard and Poor’s 500 Index slid 0.6 per cent at 9.30am in New York, extending a fourth straight weekly slump. The Stoxx Europe 600 Index slipped 2.1 per cent after falling 4.8 per cent yesterday.
Oil was down 1 per cent, paring its loss from 3.9 per cent. Gold futures topped $1,880 an ounce for the first time before trimming gains.
More than $6 trillion has been erased from global equities this month on signs the US recoveryis stumbling, while the cost of insuring European sovereign debt is back to levels that triggered the region’s central bank to buy Italian and Spanish bonds on August 8th.
The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales.
“The market is in dire need of confidence,” Burt White, who helps oversee $330 billion as chief investment officer at LPL Financial COrp in Boston, said in a telephone interview. “The news today that the EU is going to consider a euro bond is important to maintain the confidence of the market. If we can get a little bit of confidence back, we think that stocks look cheap. Cheap isn’t cheap enough when you have a confidence problem.”
The S&P 500 extended yesterday’s 4.5 per cent slump. The index tumbled 16 per cent from its April high through yesterday, about the same as the retreat between April 23rd and July 2nd, 2010, previously the biggest contraction of the bull market that began in March 2009. The slide left the benchmark for US trading at about 12.5 times reported earnings, near the cheapest level since the bull market began.
Citigroup cut its US gross domestic product growth estimate to 1.6 per cent in 2011 from 1.7 per cent, and lowered its forecast for 2012 to 2.1 per cent from 2.7 per cent. JPMorgan Chase and Co said GDP will grow 1 per cent in the fourth quarter rather than the 2.5 per cent previously forecast and 0.5 per cent in the first quarter of 2012 instead of 1.5 per cent.
Citigroup also reduced its earnings estimates for S&P 500 companies for this year and next.
European banks declined after Egan-Jones Ratings Co’s Sean Egan said lenders will struggle to raise enough capital to counter potential losses from the region’s sovereign crisis. The gauge of lenders in the Stoxx 600 fell 2.3 per cent, paring a loss of as much as 3.6 per cent. Lloyds Banking Group, Britain’s biggest mortgage lender, declined 5.6 per cent, Swedbank AB retreated 3.1 per cent and Deutsche Bank AG lost 4 per cent.
Autonomy Corp surged 75 per cent after the UK software company agreed to be bought by Hewlett-Packard for $10.3 billion. HP shares tumbled.
The euro gained against 11 of its 16 major counterparts, advancing 0.3 percent versus the yen. The difference in yield between Spain’s 10-year note and the benchmark German bund narrowed five basis points to 2.85 per cent.
“These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets,” EU economic and monetary affairs commissioner Olli Rehn said in a written response to a European Parliament question. He gave no timetable for either the report on euro bonds or any related draft law.
Two-year Greek yields surpassed 37 per cent for the first time in almost a month, and 10-year yields increased 53 basis points to 16.53 per cent. The extra yield investors demand for holding 10-year Portuguese debt instead of German bunds rose to 8.44 percentage points, a two-week high.
The Swiss franc appreciated against all 16 major peers, increasing 1 per cent against dollar and 0.5 per cent versus the euro
Source Bloomberg & Irish Times