NEW YORK Global stocks and the euro slumped on Monday as disappointing euro zone private sector data and a Dutch budget crisis unnerved investors who scooped up perceived safe haven assets such as the dollar and U.S. Treasuries.
With Dutch Prime Minister Mark Rutte tendering his cabinet's resignation in an impasse over budget cuts and dismal PMI figures from the euro zone, economists worried that the region's economy will stay in recession until the second half of the year.
The April PMI reports for the euro zone, Germany and France, which are a guide to future activity, pointed to a much faster rate of economic contraction across the debt-laden region than had been expected. <EUR/PMIS>
U.S. stocks fell sharply soon after the opening, with the Dow Jones industrial average .DJI, the Standard & Poor's 500 Index .SPX and the Nasdaq Composite Index .IXIC all dropping more than 1 percent.
"Europe is driving the boat right now, and there's no reason to think that investor anxiety will dissipate any time soon," said Joe Cogan, vice president of international equities at Topeka Capital Markets in New York. "In addition, the market has been due for a pullback, and I think we could see another 2 to 3 percent of downside before investors come back in the market."
Wal-Mart Stores Inc (WMT.N) sank more than 4 percent after the New York Times reported officials at the retailer stymied an internal investigation into allegations of extensive bribery at its Mexican subsidiary.
European stocks fell, as well, with the FTSE Eurofirst .FTEU3 index of top European shares off 2.48 percent, after having posted its best week in a month. The euro fell against both the dollar and the yen, dropping 0.85 percent to $1.3109 and 1.28 percent to 106.38 yen.
"Our base-case scenario is still for a gradual return to modestly positive growth in the second half of this year but with the lingering debt crisis and the ongoing drag from fiscal policy the risks are clearly skewed to a more protracted recession," said Martin van Vliet of ING, speaking of the euro zone.
Dutch and peripheral euro zone bonds sold off, driving Spanish yields back above 6 percent and taking the spread of Dutch bonds over German benchmarks to its highest in three years.
Adding to the uncertainty, anti-immigration crusader Marine Le Pen surged to a third-place finish in the first round of the French presidential elections, stealing the show from front runners Socialist Francois Hollande and incumbent Nicolas Sarkozy.
"It's beginning to look like the perfect storm," said Stewart Richardson, chief investment officer at RMG.
"If there is a Dutch election coming up soon it just adds to the whole cocktail of worries for the market."
Voters in Greece also go to the polls on May 6, where the only two major parties that back the EU/IMF bailout plan are just ahead according to the latest polling.
April's PMI for the euro zone's dominant service sector fell to 47.9 from 49.2 in March, a five-month low and below forecasts in a Reuters poll of more than 40 economists which projected a rise to 49.3.
But the impact of the data was increased by a separate PMI for Germany which showed Europe's largest economy had seen its export-oriented manufacturing sector shrink at the fastest pace in nearly three years in April.
"They're all telling us that the (euro zone) economy has lost a lot of momentum. It's not even true now to say this is a problem of the periphery because the core economies would appear to be suffering too," said Peter Dixon, global equities economist at Commerzbank.
The news sent safe-haven German government bond yields to record lows. The benchmark 10-year U.S. Treasury note was up 15/32 in price, with the yield at 1.92 percent.
The worries in Europe also pressured oil prices, with U.S. crude futures extending losses to more than $2 on Monday, falling below the 100-day moving average of $102.02 a barrel.
Gold prices eased to $1,628.56 an ounce, extending the more than 2 percent losses it has posted so far this month.
Gold watchers are expected to turn their attention to the Federal Reserve's two-day policy meeting from Tuesday, at which the potential for more monetary easing is set to be addressed.