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REFILE-GLOBAL MARKETS-Stocks sink in global sell-off, bonds soar
August 4, 2011 / 5:31 PM / in 6 years

REFILE-GLOBAL MARKETS-Stocks sink in global sell-off, bonds soar

(Refiles to delete repetition of paragraphs on stock indexes)

* MSCI world stocks fall to fresh 2011 low

* Dow falls 300 points, S&P 500 down 2.7 pct

* Yen slides after Tokyo intervenes

* ECB in the market buying bonds - traders (Updates to afternoon)

By Edward Krudy and Rodrigo Campos

NEW YORK, Aug 4 (Reuters) - World stocks plunged to new lows for the year on Thursday with a sell-off in markets accelerating sharply as investors fretted about the outlook for the global economy and piled into safe-haven bonds.

European stocks tumbled to a level not seen since after the financial crisis in mid-2009, with Italy’s equity market firmly in bear market territory, down nearly 30 percent since February, as investors fretted the euro-zone debt crisis was spreading.

Italy's blue-chip FTSE MIB index .FTMIB was suspended about 30 minutes before the close. The index tumbled slightly more than 5 percent.

With investors seemingly caught in a perfect storm, officials around the world moved to calm markets and ease volatility. The boldest step came from Tokyo, where the government spent an estimated 1 trillion yen ($13 billion) to stem the strength of its currency.

The intervention comes a day after an unexpected cut in interest rates by Switzerland to weaken the franc, which has spiked in recent days as investors search for safe havens. The currency edged slightly higher in New York trade on Thursday.

Even gold, which has raced to a series of new highs near $1,700 an ounce amid the gathering uncertainty, tumbled as deepening losses on Wall Street prompted investors to sell the metal and cover losses amid increasing margin calls outside of the commodity sector.

“When you get outside markets down significantly, some investors liquidate their winning positions in the gold and silver market longs to raise margins and support their losing trades,” Phillip Streible, senior market strategist with Chicago-based futures broker MF Global.

The selling “is across market segments in terms of institutions, individuals, and traders,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey. “Everyone is leaning into it. It’s a classic capitulation.”

The exodus from stocks pushed the broad Standard & Poor's 500 Index .SPX down as much as 3.5 percent, while the clamor for safe-haven investments drove the yield of the 10-year U.S. Treasury note US10YT=RR below 2.5 percent, the lowest since early November 2010.

The Dow Jones industrial average .DJI dropped 300.69 points, or 2.53 percent, to 11,595.75. The Standard & Poor's 500 Index .SPX fell 34.46 points, or 2.73 percent, to 1,225,88. The Nasdaq Composite Index .IXIC dropped 72.90 points, or 2.71 percent, to 2,620.17.

The MSCI world equity index .MIWD00000PUS was down 3.2 percent for the day, its largest daily fall in a year, and hit a fresh 2011 low.

European stocks .FTEU3 lost 3.3 percent.

Safe-haven assets like the Swiss franc, the yen and gold have spiked this week as investors fret that governments around the world are planning spending cuts at a time of slowing global economic growth. Government moves are seen as just temporarily reversing the trend.

The latest spate of economic data points to slowing demand in the United States, while the euro zone grapples with the spread of its debt crisis to Spain and Italy, where borrowing costs have increased sharply.

The benchmark 10-year U.S. Treasury note US10YT=RR rose a little more than a full point to yield 2.50 percent, a level not seen since early November 2010.

The European Central Bank kept interest rates unchanged on Thursday, but traders said the central bank has been buying bonds of peripheral euro-zone countries in an effort to keep rates lower.

German Bunds gained, while Italian and Spanish government bond yields rose in volatile trade on Thursday, after a euro- zone monetary source said the European Central Bank was only planning to buy Portuguese and Irish bonds. For more see [ID:nR1E7IF024].

Markets were unconvinced the ECB bond buying will be effective in stopping contagion and some were disappointed that Italian and Spanish bonds, whose yields climbed above 6 percent recently, were not the target of the purchases.

“It wasn’t a unanimous decision to (buy bonds). (ECB President Jean-Claude) Trichet looked really uncomfortable saying it,” one trader said.

“The market, obviously, dismissed it pretty rapidly,” another trader said.

Brent LCOc1 fell more than 3 percent and U.S. crude CLc1 lost 4.8 percent, or $4.51 to $87.42 a barrel. Copper prices CMCU3 dropped 1.8 percent. (Additional reporting by Julie Haviv, Marius Zaharia and Emelia Sithole-Matarise; Editing by Jan Paschal)

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