Wall Street dive rattles jittery investors
New York, August 8, 2011
US stocks tumbled on Monday, tracking a sharp drop in global equity markets after rating agency Standard & Poor's cut the top-tier AAA credit rating of the United States, rattling already-jittery investors.
Having seen some $2.5 trillion wiped off its global share values last week, MSCI's all-country world stock index was down a further 1.4 percent, its lowest level since late September last year. Emerging market stocks fell 3.3 percent.
The technology heavy Nasdaq fell more than 3 percent at the open. Market sectors most sensitive to the economy, such as the banking and natural-resource sectors, took the brunt of selling. United States Steel Corp fell 6.2 percent to $31.18, while Citigroup dropped 5 percent to $31.83.
The Dow Jones industrial average dropped 215.55 points, or 1.88 percent, to 11,229.06. The Standard & Poor's 500 Index fell 27.71 points, or 2.31 percent, to 1,171.67. The Nasdaq Composite Index lost 58.30 points, or 2.30 percent, to 2,474.11.
The New York Stock Exchange invoked a special regulation known as Rule 48 to smooth trading at the market open.
European share measured by the FTSEurofirst 300 index were down 2 percent after earlier registering gains on the ECB action, intended to take the heat out of the spreading euro zone debt crisis.
Since July 29, European shares as measured by MSCI have lost $932 billion, more than the combined economies of Greece, Ireland and Portugal.
ECB buying was lifting some peripheral bond prices. Yields on five-year Italian and Spanish bonds were down around 80 basis points, spreads against German debt narrowed and the cost of insuring Spain and Italy against default dropped.
But safe-haven buying sent gold soaring to a new record above $1,700 an ounce. Investors were seemingly unimpressed by weekend talks between industrialised countries aimed at safeguarding the smooth functioning of financial markets.
"What's concerning us and holding us back from buying what we think is value is that the ferocity of the momentum of the downside is still quite strong," said Paul Zemsky, head of asset allocation at ING in New York.
"It won't be long now before other ratings agencies follow suit, considering the state of the US' finances. One thing is for certain, and that's that volatility will continue to remain high, making trading conditions difficult," said Angus Campbell, head of sales at Capital Spreads.
Moody's repeated a warning on Monday it could downgrade the United States before 2013 if the fiscal or economic outlook weakened significantly, but said it saw the potential for a new deal in Washington to cut the budget deficit before then. - Reuters