Global stocks, euros tumble over Spain
US AND European stocks fell on Friday and the euro hit record lows after Spain’s heavily indebted Valencia region asked for financial aid, increasing investor fears that the Spanish government will seek a full-blown bailout.
Valencia sought help under an 18 billion euro ($22.1 billion) program passed on Thursday that aims to bolster regional finances.
Spain’s IBEX stock index fell 5.8 percent, its biggest one-day drop in two years, and the risk premium on government debt hit a euro-era high as its borrowing costs rose to 7.32 percent.
That is above the 7 percent threshold considered unsustainable, with little relief in sight.
“There is very little to stop Spanish bond (yields) moving up at the moment, and that is a big concern,” said Ed Shing, head of European equity strategy at Barclays.
Martin Briggs, risk advisory consultant for global payments company AFEX Markets Plc in London, called the euro “a slow motion train crash that’s happening in front of our eyes. No one seems to have the will or the ability to make the tough decisions that need to take place.” The euro plumbed record lows against the Australian, Canadian and New Zealand currencies and hit multi-month lows against the Norwegian and Swedish crowns. Against the yen, it hit the lowest level in more than 11 years.
The euro fell as low as $1.2143, its weakest level against the dollar since mid- June 2010. It last traded at $1.2160, down 1.0 percent, as a sell-off against sterling and the Swedish crown exacerbated the euro’s slide.
US stocks snapped a three-day winning streak while stocks in Europe extended losses after the European Central Bank said it would stop accepting Greek bonds as collateral, adding to concerns about the eurozone debt crisis. The FTSEurofirst 300 closed down 1.5 percent at 1,048.98.
Banks and insurers, which stand to lose on their sovereign bond holdings and loan books if the euro zone crisis intensifies, were among the top decliners in Europe. Banks fell 3.7 percent and insurers slipped 1.9 percent.
Spain’s plight overshadowed another round of strong US corporate earnings, including better- than-expected profits at General Electric and strong advertising revenue at Google.
“The news from Europe continues to be a smoldering mess, and it will be a long convoluted process before things are resolved there,” said John Kattar, who helps oversee $1.7 billion in assets as chief investment officer at Eastern Investment Advisors in Boston.
The Dow Jones industrial average ended down 120.79 points, or 0.93 percent, at 12,822.57. The S&P 500 Index closed down 13.85 points, or 1.01 percent, at 1,362.66.
The Nasdaq Composite Index finished down 40.60 points, or 1.37 percent, at 2,925.30.
German bond prices and US Treasuries rose as investors clamored for safe-haven assets.