GLOBAL MARKETS-Fear of Greece euro-zone exit sparks sell-off

Mon May 14, 2012 11:33am EDT

* China slowdown, deeper euro-zone recession heightens worries

* European shares fall nearly 2 pct, Wall Street opens lower

* Euro near its lowest in four months

* Government debt gains from safe-haven demand

By Herbert Lash

NEW YORK, May 14 (Reuters) - Global stocks slid and the euro hit a four-month low o n M onday on worries about a potential exit by Greece from the euro zone, while the outlook for slower world growth worsened after China moved to prop up lending.

Data pointing to a deeper European recession, along with growing skittishness about the Greek debt crisis, helped push European shares down nearly 2 percent to their lowest levels in more than four months. Stocks on Wall Street touched a three-month low before recovering some losses.

Government debt gained, pushing German yields to record lows, as coalition talks in Greece on Sunday faltered, increasing the chance of new election in mid-June. An inconclusive vote on May 6 left the country's political leaders divided on its 130 billion euro bailout, with neither side able to form a government.

"The growing possibility of Greece saying 'bye-bye' has put the entire region into the realm of the unknown in terms of the economic ripple effects," Peter Boockvar, equity strategist and portfolio manager at Miller Tabak, said in a note.

Safe-haven currencies, such as the dollar and the Japanese yen, rose. Expectations are for the euro to continue to fall, driven by speculation over the implications of Greece's possible exit from the euro zone.

The Dow Jones industrial average was down 72.20 points, or 0.56 percent, at 12,748.40. The Standard & Poor's 500 Index was down 8.33 points, or 0.62 percent, at 1,345.06. The Nasdaq Composite Index was down 25.64 points, or 0.87 percent, at 2,908.18.

Compounding the picture for investors was data that showed output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signaling the bloc's recession may not be as mild as policymakers hope.

Industrial production in the 17 countries sharing the euro fell 0.3 percent from February, the EU's Eurostat statistics office said. Economists polled by Reuters had expected a 0.4 percent increase in March.

Also weighing on investor sentiment were signs of a struggling Chinese economy. China cut bank reserve requirements on Su nday to free up an estimated 400 billion yuan ($63.5 billion) for lending in a bid to avert a sudden slowdown in the world's second-largest economy.

The pan-European FTSEurofirst 300 index pared some losses to trade 1.7 percent lower at 1,005.33, after hitting its lowest point since late December at 998.93. MSCI's measure of world stock markets fell 1.2 percent to 311.20.

The yield on U.S. Treasury prices, which moves inversely to price, fell to their lowest levels since early October, breaking decisively below 1.80 percent, which has been a key resistance point.

The benchmark 10-year U.S. Treasury note was up 19/32 in price to yield 1.77 percent.

German Bund futures rose as much as 92 ticks on the day to an all-time high of 143.69, while German 10-year yields plumbed a record low of 1.434 percent.

Oil fell sharply to extend recent heavy losses as the mounting political uncertainty over Greece and the prospect for slower growth in China weighed on the demand outlook for energy.

Brent crude was down by $1.26 to $111.00 a barrel. U.S. crude fell $1.59 to $94.54 a barrel.

The euro fell 0.57 percent to $1.2841. The U.S. dollar index was up 0.42 percent at 80.601, and against the Japanese yen, the dollar was down 0.21 percent at 79.75 yen.

Analysts said the euro could hit the 2012 low of $1.2623 in coming weeks, with some forecasting a break toward $1.20.

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Comments (1)
BOOWAH wrote:
Factor in a Greek disorderly default and get over it! It’s a done deal! They’re not getting any more loans to bail them out! They’re out of the Euro also!

May 14, 2012 12:58pm EDT  --  Report as abuse
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