Turmoil in Europe pushes stocks lower in US

Polit­i­cal uncer­tainty in debt-hobbled Europe spread to finan­cial mar­kets Tues­day and pushed stocks lower in Europe and the United States.

The Dow Jones indus­trial aver­age was down almost 200 points at its low point for the day before recov­er­ing most of its loss to fin­ish down 76. It was the average’s fifth straight decline.

Euro­pean indexes closed near their low­est lev­els in months, and the euro neared a five-month low against the dollar.

Prices plum­meted for com­modi­ties like oil and cop­per that depend on the health of the world econ­omy. The tur­moil in Europe added to con­cerns about slower eco­nomic growth in China and weaker job cre­ation in the U.S.

Trad­ing through­out the mar­kets is grow­ing more volatile as Europe’s debt cri­sis “accel­er­ates to a point where it’s not really con­trol­lable with the sorts of Band-Aids they’ve used,” said Daniel Alpert, man­ag­ing part­ner at the invest­ment bank West­wood Cap­i­tal Part­ners LLC.

Greek vot­ers on Sun­day rejected par­ties that had imposed the deep spend­ing cuts demanded by Greece’s bailout lenders. Cuts to pen­sions and social pro­grams are deep­en­ing Greece’s crush­ing recession.

On Tues­day, the left-wing politi­cian strug­gling to form a new gov­ern­ment declared that the coun­try was no longer bound by its promises cut spend­ing sharply in exchange for inter­na­tional bailout loans.

The politi­cian, Alexis Tsipras, also demanded a mora­to­rium on repay­ing the part of Greece’s debt that is “oner­ous.” The main stock index in Greece closed down 3.6 per­cent after a 7 per­cent decline the day before.

After a calm fin­ish Mon­day, bench­mark indexes in Ger­many and France plunged to near their low­est lev­els this year. Italy’s was near its low­est since last Novem­ber. The main stock index in Britain hit its low­est point this year.

Cen­tral banks have injected bil­lions into Europe’s finan­cial sys­tem, pro­vid­ing tem­po­rary sup­port for stock and com­mod­ity prices, Alpert said. “If that liq­uid­ity is sup­posed to prime the pump, and the pump doesn’t take over, then you’ve got a prob­lem,” he said.

In the U.S., traders dumped risky assets and com­modi­ties, partly because of con­cern that a pun­ish­ing reces­sion in Europe would hurt eco­nomic demand. The price of oil con­tin­ued its week-long slide. Cop­per and sil­ver each lost more than 2 percent.

Gold fell $34.60 to a four-month low of $1,604.50. It dipped below $1,600 for the first time since early Jan­u­ary. Gold often serves as a safe, sta­ble invest­ment to hold in tur­bu­lent times. But in peri­ods of rapid sell­ing, investors some­times sell gold as a ready source of cash.

The stronger dol­lar con­tributed to the fall in com­mod­ity prices. Com­modi­ties are priced in dol­lars, so a stronger dol­lar makes them appear more expen­sive to traders who use other currencies.

Money flowed into safe invest­ments such as U.S. Trea­surys, push­ing the yield on the 10-year Trea­sury note down to 1.85 per­cent from 1.88 per­cent late Monday.

A flurry of late-day buy­ing helped the indexes recover from their ear­lier lows. The Dow closed down 76.44 points, or 0.6 per­cent, at 12,932.09. The Stan­dard & Poor’s 500 index fell 5.86 to 1,363.72. The Nas­daq com­pos­ite index fell 11.49 to 2,946.27. The S&P had been down almost 22 points and the Nas­daq almost 58.

Mar­kets have been buf­feted for three years by shift­ing per­cep­tions about the grav­ity of the Euro­pean debt cri­sis. At times, many feared a messy string of gov­ern­ment defaults would set off a global credit crunch.

Ear­lier this year, trad­ing had turned rel­a­tively placid as pol­i­cy­mak­ers rolled out a host of mea­sures aimed at reas­sur­ing investors.

To shore up the region’s shaky banks, the Euro­pean Cen­tral Bank injected bil­lions of euros into the finan­cial sys­tem. Gov­ern­ments in Italy and Greece fell last year, replaced by tech­nocrats whom inter­na­tional lead­ers trusted to nav­i­gate the cri­sis. Lead­ers of indebted nations agreed to tighten their bud­gets. They slashed pen­sions and gov­ern­ment jobs, raised retire­ment ages and elim­i­nated social programs.

The mea­sures were aimed at sooth­ing bond investors and pre­vent­ing nations’ bor­row­ing costs from ris­ing. By strik­ing at vot­ers’ qual­ity of life, they pro­voked angry polit­i­cal oppo­si­tion to the plans.

Oppo­nents of strict aus­ter­ity say Europe will be unable to emerge from its reces­sion unless gov­ern­ments spend more to boost demand in the economy.

On Sun­day, in addi­tion to the elec­tion in Greece, French vot­ers elected a pres­i­dent who has spo­ken out against aus­ter­ity and promised to cut France’s debt load more slowly.

Uncer­tainty about Europe’s path for­ward is inject­ing volatil­ity into global mar­kets. As fears about Europe and the U.S. econ­omy reemerged in recent weeks, traders have returned to fren­zied buy­ing and sell­ing that recalls last year’s record-breaking mar­ket swings.

Among U.S. stocks mak­ing moves Tuesday:

— Burger chain Wendy’s fell 4.1 per­cent after it cut its fore­cast and said its first-quarter profit missed Wall Street ana­lysts’ expectations.

— Watch­maker Fos­sil plunged 37.6 per­cent after say­ing weak sales in Europe caused its first-quarter rev­enue to fall far short of expec­ta­tions. The com­pany also low­ered its 2012 earn­ings forecast.

— Casino oper­a­tor Wynn Resorts reported a dis­ap­point­ing drop in first-quarter earn­ings, send­ing its stock down 4.8 percent.

Posted by AP News on May 8 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.