Fresh evidence that the US recovery is faltering, and fears over the need for possible bail-outs in Italy and Spain rocked investors’ confidence. They overshadowed the agreement to lift the $14.3 trillion (£8.2 trillion) debt ceiling in the US and highlighted how a second bail-out for Greece had not dampened fears over an escalating sovereign debt crisis in the eurozone.
“You’re seeing a buyers’ strike,” Kenneth Polcari, managing director at ICAP Equities, told The Daily Telegraph on the floor of the New York Stock Exchange. “It’s not panic but people are very nervous about the US economy and what’s happening in Europe."
The Dow closed down 265.87 points, or 2.2pc, to close at 11,866.60. Its eighth day of declines is its worst losing streak since the height of the financial crisis in September 2008. The S&P 500 finished 2.6pc lower at 1,254.05. Sentiment was hit by the first drop in US consumer spending in almost two years, raising fears of a double-dip recession.
In Europe, Spanish prime minister José Luis Rodríguez Zapatero cancelled his summer holiday and Rome called an emergency meeting, triggering fresh alarm on bond markets. Yields on Italy’s benchmark 10-year bond hit their highest level since 1999’s launch of the euro, closing at 6.11pc after touching 6.22pc. The equivalent Spanish bond reached a near record peak of 6.43pc, before ending a febrile day’s trading at 6.25pc.
Mr Zapatero’s decision to cancel his holiday in Spain’s Doñana national park spooked traders in Madrid, where the local bourse fell 2.17pc. In a statement, the administration said his holiday had been delayed so he could “follow more closely the evolution of economic indicators”.
Spanish and Italian bond yields inched closer to the 7pc level that forced the emergency rescues of Greece, Ireland and Portugal. The premiums Madrid and Rome have to pay to borrow compared with Germany also hit record highs . All major stock exchanges in Europe fell, with the FTSE 100 closing down 0.97pc at 5,718.39, Germany’s DAX slipping 2.26pc and the CAC 40 in Paris dropping 1.82pc.
“In this US-versus-Europe ugly contest, it’s hard to decide where to start from,” said analysts at BNP Paribas.
In a further sign of fear, the yield on safe-haven German bonds fell below the nation’s inflation rate for the first time since the country’s reunification in 1990, dipping to 2.395pc before closing at 2.42pc.
Gold touched an all-time high of $1,640.39 and the Swiss franc rallied to a fresh peak against the euro.
Italy’s stock market fell 2.5pc after economy minister Giulio Tremonti called a meeting of the country’s financial stability committee. Italy’s debt to GDP ratio of 120pc is the worst of any euro nation after Greece’s 160pc. “The fear of the market is that the world is going into recession again,” said Alessandro Giansanti, an ING bank strategist.
European Commission officials played down fears that Spain or Italy would require a bail-out, but were monitoring the situation closely. An EC spokesman said: “We are very confident in both the Spanish and Italian authorities’ determination to get their economies back on track”.
“In this US-versus-Europe ugly contest, it’s hard to decide where to start from,” said analysts at BNP Paribas.
In a further sign of fear, the yield on safe-haven German bonds fell below the nation’s inflation rate for the first time since the country’s reunification in 1990, dipping to 2.395pc before closing at 2.42pc.
Gold touched an all-time high of $1,640.39 and the Swiss franc rallied to a fresh peak against the euro.
Italy’s stock market fell 2.5pc after economy minister Giulio Tremonti called a meeting of the country’s financial stability committee. Italy’s debt to GDP ratio of 120pc is the worst of any euro nation after Greece’s 160pc. “The fear of the market is that the world is going into recession again,” said Alessandro Giansanti, an ING bank strategist.
European Commission officials played down fears that Spain or Italy would require a bail-out, but were monitoring the situation closely. An EC spokesman said: “We are very confident in both the Spanish and Italian authorities’ determination to get their economies back on track”.
The telegraph
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