* World stocks fall on worries over U.S. fiscal cliff
* S&P falls 2 pct, sets for worst 1-day drop since June
* Euro weakens before Greece vote on austerity
* U.S. bonds, dollar rise on safe-haven bids
* Gold retreats from 2-week high, oil tumbles
By Richard Leong
NEW YORK, Nov 7 World shares and the euro fell
on Wednesday as investors worried that the deep fiscal challenge
facing U.S. President Barack a day after his re-election could
lead to a new recession.
Fresh concerns about Europe's debt crisis added to the
jitters among investors, who scrambled for safer assets.
Benchmark U.S. Treasury yields were set for their biggest
one-day fall since May.
Worry persisted whether Obama could reach a timely deal with
Republican lawmakers in the lame-duck session of a divided
Congress to avert the "fiscal cliff" -- the $600 billion in
automatic tax hikes and spending cuts set to start kicking in on
J an. 1.
"The minute such a deal is cut, we'll boom. If one is not
cut - and soon - we may well double-dip into recession," said
Robert L. Reynolds, president and chief executive of Putnam
Investments in Boston.
"This upcoming lame-duck session may just be the most
consequential in our lifetimes. The stakes are high and the time
is short," he said in a statement.
Traders were also anxious about a vote in Greece's
parliament later o n W ednesday on an austerity package needed to
secure a fresh injection of international aid and avert
bankruptcy, which would rock the euro zone and world markets.
European Central Bank President Mario Draghi said the ECB
expects the euro zone economy to remain weak "in the near term"
and that the problems were spreading to Germany.
"If the Greek vote doesn't go through, there is a lot of
downside risk to the euro as talk of a Greece exit will
re-emerge," said Jane Foley, senior currency strategist at
The drop in U.S. equities was similar to the one on the day
after Obama won his first White House term in 2008.
The Standard & Poor's 500 index was set for its worst
one-day loss since June. It was last down 27.39 points, or 1.92
percent, at 1,401.00.
The Dow Jones industrial average was down 263.64
points, or 1.99 percent, at 12,982.04. The Nasdaq Composite
Index was down 61.83 points, or 2.05 percent, at
Energy shares tumbled as the sector will likely see more
regulation in Obama's second term, with less access to federal
lands and water even as he promotes energy independence. James
River Coal tumbled 23 percent to $3.63 a share.
The FTSE Eurofirst 300 index of top European shares
closed down 1.4 percent, its biggest drop in two weeks, at
Bucking the market were French banking stocks. They were
helped by BNP Paribas' forecast-beating quarterly
earnings, which sent its shares 1 percent higher to 39.54 euros.
European and Asian stock markets rose initially on relief
buying when U.S. election results for the White House and
Congress were clear and reinforced expectations the Federal
Reserve's ultra-loose monetary policy will continue.
The MSCI world equity index was briefly 0.4
percent higher before falling 1.3 percent to 327.55.
As worries over the U.S. fiscal cliff and Greece's austerity
votes moved to the forefront, investors flocked to the safety of
low-risk assets, including the greenback and U.S. and German
The U.S. dollar recovered from early losses, resuming its
rally during this week's tense run-up to the U.S. election. The
dollar index that measures the greenback against a basket of
major currencies was up 0.2 percent, touching a two-month
high earlier at 80.924.
The euro on the other hand fell 0.5 percent to
$1.266, retreating from a session high of $1.2876.
Gold turned lower after hitting a two-week high. It
was last 0.5 percent lower at $1,707.59 an ounce.
In the bond market, the yield on 10-year Treasury notes
was 1.6336 percent, on track for its biggest
single-day drop since May 30, according to Reuters data.
German Bund futures climbed 68 basis points, or 0.5
percent, at 142.77.
Worries about weaker energy demand caused a sell-off in the
oil market after it rallied on Tuesday. Brent crude oil
fell $3.84 or 3.5 percent to $107.23 a barrel and U.S. oil
futures fell $3.47 or 4 percent to $85.24.