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Stocks, oil slide as economic fears spark rout
NEW YORK |
NEW YORK (Reuters) - Global stocks and commodities sold off on Thursday as investors dumped risky assets and rushed into safe-havens on fears fiscal tightening is on the rise and will snuff the world's nascent recovery.
U.S. stock indexes dropped 3.6 percent or more, with the benchmark Standard & Poor's 500 Index now showing a correction. The index is off 12 percent from its 2010 closing high in April.
At one point the euro fell to its lowest against the yen since November 2001, hurt by seeming disunity among euro zone leaders on how to address the region's debt crisis.
But the euro later rebounded as investors who had bet against the single currency were forced to buy back euros to cut their losses in what is known as a "short squeeze."
U.S. government debt prices soared in heavy trading as investors sold liquid assets and snapped up safe-havens. Gold prices dropped, but the losses in equity markets spurred demand for the safe-haven metal.
"There is money flowing out of Europe and into U.S. Treasuries, and that has been going on for days," said Raymond Remy, U.S. head of fixed income at Daiwa Securities in New York.
The Chicago Board Options Exchange Volatility index .VIX, often referred to as Wall Street's fear gauge, surged almost 30 percent to its highest closing level since March 2009.
Fiscal tightening in debt-strapped developed countries will slow growth and lower inflation across the world, which is increasing selling pressure in financial markets, said Bill Gross, co-chief investment officer at Pimco.
Gross told Reuters financial markets are exhibiting "a mini-relapse of a flight to liquidity as hedge funds and other leveraged positions are liquidated to preserve capital."
The International Monetary Fund on Wednesday pressed Japan to begin a "credible" fiscal program which includes a 5 percent sales tax increase. French President Nicolas Sarkozy proposed deficit "targets" for France.
The belt-tightening sparked investors' fears while an unexpected jump in new U.S. jobless claims underscored the apprehension. Volatility reigned as a sense of instability unleashed panicky selling across markets.
Also driving anxiety were concerns over a proposed overhaul of U.S. financial regulation, which critics say would reduce banks' capacity to lend and broadly increase borrowing costs.
"Uncertainty has people stampeding for the exits," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.
The Dow Jones industrial average .DJI closed down 376.36 points, or 3.60 percent, to 10,068.01. The Standard & Poor's 500 Index .SPX slid 43.46 points, or 3.90 percent, to 1,071.59. The Nasdaq Composite Index .IXIC lost 94.36 points, or 4.11 percent, to 2,204.01.
U.S. oil prices fell for the seventh in eight sessions.
The expiring June contract on the New York Mercantile Exchange tumbled nearly 3 percent in thin trade as remaining open interests were either rolled to the next month or sold, in an effort to avoid physical delivery.
U.S. crude for June delivery settled down $1.86 at $68.01 a barrel, down more about 22 percent from the 19-month of $87.15 hit on May 3.
The euro rose against the dollar, boosted by its gains versus the Swiss franc, with traders bracing for the possibility European monetary officials may intervene to prop up the single currency.
The euro was up 0.64 percent at $1.2507, while the dollar was down against major. The U.S. Dollar Index .DXY as down 0.69 percent at 85.798 and against the yen, the dollar was down 2.24 percent at 89.58.
The benchmark 10-year U.S. Treasury note was up 41/32 in price to yield 3.22 percent.
The sell-off initially was driven by fear that Europe's debt crisis would hobble economic growth and then accelerated on signs governments need to rein in deficit spending.
Fears other euro zone countries will follow Germany's move to ban short selling in some stocks and bonds helped propel a widespread aversion to risk.
The Reuters-Jefferies CRB index .CRB, a global benchmark for commodities, at one point slumped to 8-1/2 month lows.
Spot gold prices fell $8 to $1182.70 an ounce.
Worries over the euro zone hammered Asian stocks, driving MSCI's index of Asia-Pacific shares outside of Japan .MIAPJ0000PUS down 2.4 percent to an eight-month low.
Japan's Nikkei average .N225 closed at a new three-month low despite data that showed Japan's economy grew 1.2 percent in the first quarter, outpacing its euro zone and U.S. peers.
(Reporting by Jennifer Ablan, Leah Schnurr, Gene Ramos, Nick Olivari, Emily Flitter in New York; Atul Prakash, Ian Chua and William James in London; Writing by Herbert Lash; Editing by Andrew Hay)
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