NEW YORK (Reuters) - Global stock markets tumbled on Monday as renewed doubts about the euro zone’s debt crisis plan last week put an abrupt end to their October rally.
A stronger dollar following Japan’s intervention to weaken the yen also stoked selling in equities, commodities and other risky assets and buying in low-risk government bonds.
Worries about the European debt crisis took a toll on MF Global MF.N. The U.S. futures broker, whose heavy bet on the region’s debt sent its shares plummeting in recent days, filed for bankruptcy on Monday.
MF’s bankruptcy, while not a catalyst in the stock market sell-off, was a sobering reminder that any exposure to the euro zone remains risky until its debt crisis is resolved.
Despite the day's losses, the benchmark Standard & Poor's 500 index .SPX was poised to gain 10.8 percent on the month, its biggest percentage rise since December 1991.
The dollar’s rise “is part of it, but a lot of it is also rethinking Europe. There was a lot of ebullience after the meeting and that is starting to fade a bit,” said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.
Fading optimism on a lasting cure for the euro zone’s debt woes knocked down oil and other commodity prices.
U.S. crude oil futures settled down 13 cents at $93.19 a barrel, partially recovering from a 1.4 percent drop. The greenback earlier jumped to a three-month high against the yen, making dollar-priced commodities more expensive for investors holding other currencies.
Lower metal prices from a firmer dollar hurt mining stocks, while banking shares succumbed to selling on renewed doubts over European leaders’ plan to prevent their sovereign debt problem from spiraling into a global financial crisis.
“After a solid month of gains, the (higher) dollar is giving traders a reason to shy (away) from the risk trade and take some profits,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
Japan sold the yen for the second time in less than three months, saying it intervened to counter speculative moves that were hurting the world’s third-biggest economy. Traders estimated the Bank of Japan could have purchased $65 billion to $75 billion against its currency.
The dollar, which had fallen to a record low of 75.31 yen earlier in Asian trade, rose more than 4 percent to as high as 79.55 yen. It was last up 3.1 percent at 78.18 yen, with traders saying more intervention would likely be needed for a more durable impact.
The euro gave up most of last week’s gains on the dollar’s advance. It was last down 2.2 percent at $1.3844, retreating further from a seven-week high around $1.4247 last Thursday on news of the euro zone’s debt-rescue plan.
The euro zone common currency looked to end October up 3.4 percent, for its best monthly performance in six months. But speculation about a European Central Bank interest rate cut on Thursday could limit gains for now.
Japan told the head of Europe’s bailout fund on Monday that it would continue to buy its bonds. But like fellow potential investor China, it did not commit to putting cash into a proposed special purpose vehicle to enhance the rescue fund’s firepower.
With the decline in the euro, equities gave back some of last week’s gains, with some analysts expecting the market pullback to be temporary.
“It’s nothing more than we were overbought,” said Jeffrey Saut, chief investment strategist at Raymond James in St. Petersburg, Florida. “We are going to see professional money chasing equities higher into the end of the year.”
The MSCI world equity index .MIWD00000PUS dropped 2.4 percent, pulling back from its highest levels in nearly three months hit last week. It is on track to gain 10 percent in October — the biggest one-month rise since April 2009.
U.S. stocks fell as the spike in the U.S. dollar weighed on commodity prices and dried up bids for other risky assets.
The Dow Jones industrial average .DJI lost 276.10 points, or 2.26 percent, to end at 11,955.01. The Standard & Poor's 500 Index .SPX was down 31.79 points, or 2.47 percent, at 1,253.30. The Nasdaq Composite Index .IXIC fell 52.74 points, or 1.93 percent, to 2,684.41.
The pan-European FTSEurofirst 300 index .FTEU3 closed down 2.2 percent but managed to end up 7.9 percent for October, the biggest one-month rise since July 2009.
In Tokyo, the Nikkei .N225 rose 3.3 percent in October, the biggest monthly percentage rise in eight months
The stock market sell-off rekindled bids for bonds. U.S. and German government debt prices advanced as peripheral euro zone government debt came under renewed pressure.
Amid worries about MF Global’s euro zone exposure, Italian 10-year government bond yields climbed back above 6 percent to levels last seen in August before the ECB stepped in to buy Spanish and Italian debt in the secondary market.
German Bund futures jumped almost 3 points to 136.57, while the U.S. 30-year Treasury bond rallied about 5 points in price to yield 3.14 percent. The 30-year U.S. yield rose 22 basis points, the biggest monthly yield jump since January.
Spot gold prices fell as the spike in the dollar spooked precious metals investors. Spot gold was last down 1.5 percent at $1,723.71 an ounce, reducing its monthly gain to 5.7 percent.
Additional reporting by Chuck Mikolajczak and Gertrude Chavez-Dreyfuss in New York and Kirsten Donovan and Brian Gorman in London; Editing by Dan Grebler