Stocks Tumble as Signs Point to Weak Global Economy
US Fiscal Policy, Eurozone Fears Raise Specter of '08 Global Credit Crisis
The stock market fell sharply Thursday on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s ongoing debt crisis, which is centered now on Italy and Spain.
As Japan intervened to weaken its currency and European stock markets turned negative across the board, United States stocks fell by around 3 percent in morning trading in New York.
The Standard & Poor’s 500-stock index was down 42.70, or 3.39 percent. The Dow was off 356.32, or 3.00 percent, to 11,540.12, and the Nasdaq was down 96.33 points, or 3.58 percent.
A fear haunting markets in the United States is that the economy may be heading for a double-dip recession. Although the fractious debt ceiling debate is now past, markets fear spending cuts and weaker economic data point to a weaker economy. The latest weekly jobless data Thursday again showed the economy was still fragile.
In Europe, the euro zone debt crisis has moved on from smaller countries like Greece to bigger nations like Italy and Spain, spurring investor fears that Europe is unable to get a handle on its festering debt problems.
Earlier in the day, European markets came under intense pressure, with sharp drops in markets in Britain, Germany and other countries.
Yields on Italian government bonds, already above 6 percent, rose sharply. Yields in Spanish debt markets also increased.
In an attempt to calm markets, the European Central Bank unexpectedly began large-scale intervention in the euro zone debt markets, the first time since March, buying bonds in an apparent attempt to prevent the region’s sovereign debt crisis from engulfing Italy.
The E.C.B. also moved to help weaker banks on the continent that may now be struggling to finance themselves, expanding its lending to institutions in the euro area at the benchmark interest rate.
Jean-Claude Trichet, the president of the E.C.B., said the bank had acted in response to “renewed tensions in some financial markets in the euro area.”
He said that uncertainty created by the debate in the United States to raise the debt ceiling had unnerved European markets. “It’s clear the entire world is intertwined,” he said. “What happens in the U.S. influences the rest of the world.”