Stocks sank, while the euro touched a ten-year low versus the yen and a six-month low against the dollar, as concern grew about Greece’s debt crisis. European bank and sovereign credit risk reached all-time highs as 10-year Treasury yields fell to a record. Oil fell 2 percent.
The MSCI All-Country World Index retreated 2.9 percent and the Standard & Poor’s 500 Index slipped 2.7 percent, wiping out its weekly gain, according to preliminary closing figures at 4 p.m. in New York. The euro sank as much as 2.1 percent to 105.3 yen and fell 1.8 percent to $1.3627 before trimming losses. Ten-year Treasury yields slid as low as 1.89 percent. Credit-default swaps signaled a more than 90 percent probability Greece will default.
Stocks extended losses as three German officials saidChancellor Angela Merkel’s government is preparing plans to shore up banks in the event that Greece defaults. The European Central Bank said Juergen Stark resigned from the executive board, suggesting policy makers are divided over how to fight the debt crisis. U.S. President Barack Obama called on Congress last night to pass a $447 billion plan to boost employment after jobs growth stalled last month.
“There’s that nagging thought that we can continue to have a downward spiral in Europe,” James Dunigan, chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. The firm oversees $109 billion. “There’s concern of a default, of risk in banks, of a liquidity crisis. In the U.S., even as President Obama made an effort to put that plan together, there’s not a whole lot of confidence that Congress will pass.”
The S&P 500 capped a sixth weekly drop in the past seven. The gauge is down more than 15 percent from an almost three-year high at the end of April, while still up more than 3 percent from its low for the year last month.
Energy, technology and financial companies were the biggest drag on the index as all 10 main industry groups dropped.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 1.2 percent to the highest level since March as the currency strengthened against 15 of 16 major peers.
The Stoxx Europe 600 Index lost 2.6 percent, extending this week’s retreat to 3.7 percent. Porsche SE tumbled 14 percent after Volkswagen AG said it will no longer complete its merger with the sports-car maker by the end of the year because of pending lawsuits. Verbund AG, Austria’s biggest power company, sank 12 percent after cutting its guidance for 2011.
The euro has weakened 3.8 percent against the dollar since Sept. 2, its biggest weekly decline in more than a year. The yield on the two-year German note dropped to as low as 0.377 percent, with the 10-year bund yield sliding as low as 1.77 percent, the lowest on record for both.
Greek two-year note yields added as much as 203 basis points to 57.08 percent, a euro-era record. Credit-default swaps insuring Greek sovereign bonds jumped 475 basis points to a record 3,500, according to CMA. One-year Greek note yields jumped 325 basis points to a record 97.96 percent.
The cost of insuring sovereign debt climbed, with the Markit iTraxx SovX Western Europe Index of credit swaps on 15 governments up 17 basis points at 340. The Markit iTraxx Financial Index of swaps on 25 banks and insurers rose 26 basis points to 290 at 4:30 p.m. in London, according to JPMorgan Chase & Co.
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