Perilous Times
4 August 2011 Last updated at 18:24 ET
Wall Street and global markets in big tumble on debt fears
Traders in New York Weak unemployment benefit data did nothing to
lighten the mood of US traders
Wall Street had its worst day for almost three years as shares
tumbled on fears about the eurozone debt crisis and the US
economic recovery.
The Dow Jones index closed down more than 500 points, or 4.3%, and
came after the leading European bourses fell more than 3%.
It was the biggest one-day fall for the Dow since October 2008.
Earlier, European Commission President Jose Manuel Barroso warned
that the sovereign debt crisis was spreading.
Also in New York, the S&P 500 index fell 4.8% and the
tech-rich Nasdaq was more than 5% lower.
Meanwhile, Frankfurt's Dax and London's FTSE 100 indexes had their
worst day this year, closing almost 3.5% lower as investors
fretted that Italy and Spain might become engulfed in the debt
crisis.
"People are throwing in the towel because they can't find relief
on any front," said Milton Ezrati, market strategist at Lord
Abbett.
Investors sought the relative safety of gold, sending the price of
the metal to a new record high of $1,677 an ounce.
Bank shares hit
More weak jobs data from the US also raised concerns about the
strength of the economic recovery there.
Wall Street's financial power houses were hit hard, with JP Morgan
and Bank of America falling 5% and 7.4% respectively.
In Europe, Lloyds Banking Group fell 9.9% and Royal Bank of
Scotland was down 7%. France's Societe Generale lost 6.9% and
Germany's Commerzbank dropped 6.8% in Frankfurt.
Miners also suffered, with Vedanta Resources slumping 9.5% and
Xstrata and Eurasian Natural Resources falling more than 8% in
London.
The oil price also slumped on fears that a weaker global recovery
would hit demand. Benchmark West Texas crude for September
delivery fell $5.30, or 5.8%, to $86.63 a barrel. Brent crude fell
5.3% to $107.25.
Since 21 July, the Dow has lost more than 1,300 points, or 10.5%
of its value, and Thursday's fall was the index's ninth-steepest
decline ever.
'Exceptional circumstances'
In a letter to European governments, Mr Barroso warned that the
eurozone debt crisis was spreading beyond the so-called periphery
nations of Greece, Portugal and the Republic of Ireland.
He said markets "remain to be convinced that we are taking
appropriate steps to resolve the crisis".
He called on them to give their "full backing" to the euro, and
urged leaders to take swift action to implement the changes to the
European Financial Stability Fund (EFSF) agreed at last month's
summit of eurozone leaders.
The EFSF is essentially Europe's rescue fund, which leaders agreed
should be able to buy government debt in "exceptional financial
market circumstances".
Reports suggested that the European Central Bank (ECB) had already
begun buying government bonds to help support countries with high
borrowing costs.
At a press conference to announce the bank was keeping eurozone
rates on hold at 1.5%, ECB President Jean-Claude Trichet merely
said the process of buying bonds was "ongoing" and fully
transparent.
Higher rates
Mr Trichet's and Mr Barroso's comments came as fears grew that
Spain and Italy may be dragged into the debt crisis.
On Thursday, the interest rate, or yield, that Spain had to agree
to pay to raise 2.2bn euros ($3.1bn; £1.9bn) for three years rose
sharply to 4.8% from 4% at a similar bond auction in early June.
This reflects heightened concerns about Spain's ability to repay
its debts.
Spain also said it had suspended a bond auction due for 18 August.
However, analysts said demand for Thursday's bond issue was strong
and despite the rise in rates, suggested 4.8% was a sustainable
rate of interest for Madrid to pay.
Yields in the secondary market, on Italian government bonds as
well as Spanish, did not move significantly higher despite the
auction.
In Italy, Prime Minister Silvio Berlusconi continued his attempts
to calm the markets, which began with a speech on the economy to
parliament on Wednesday.
Mr Berlusconi met union leaders and employers' representatives,
and pledged a number of measures to try to increase confidence in
the Italian economy.