US equities tumbled the most since February and European stocks erased their 2010 gain, while the euro slid to a one-year low, amid concern a government debt crisis is spreading. Commodities and shares of their producers sank on a slowdown in Chinese manufacturing. Treasuries rallied.
The Standard & Poor’s 500 Index slid 2.4 per cent at 1:25 pm in New York and the Stoxx Europe 600 Index plunged 2.9 per cent, leaving it down 0.4 per cent this year. The euro weakened below $1.31 for the first time since April 2009. Copper fell to the lowest since February, while oil sank the most in three months as the dollar rose against 14 of 16 major counterparts. The 10-year Treasury yield slid six basis points to 3.62 per cent.
Spanish Prime Minister Jose Luis Rodriguez Zapatero said speculation of a bailout for Spain is “complete madness” and the nation has “strong solvency.” His remarks came as a ¤110 billion ($143 billion) rescue package to help Greece avoid default fails to ease concern that swelling sovereign debt will derail the economic recovery.
“Spain and Portugal are both endangered species,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $9 billion. “The attention could shift to one of those countries. In the US, it’s no longer news that earnings are better than expected. The stock market has had a great run. I’ve got a feeling that May is going to be a month of consolidation or even of backing down a little bit.”
The S&P 500 erased yesterday’s rally and the cost to use options to protect against further declines in equities surged as concern over European government debt overshadowed bigger- than-estimated growth in US factory orders and pending home sales.
Alcoa Inc, Caterpillar Inc. and Hewlett-Packard Co sank at least 3.6 per cent to lead the Dow Jones Industrial Average to its biggest drop since February. Pfizer Inc and Merck & Co posted two of three gains in the 30-stock average. All 10 main industries in the S&P 500 retreated.
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The benchmark index for US stock options jumped to the highest intraday level since February and Europe’s gauge rose to the highest level since July. The VIX, as the Chicago Board Options Exchange Volatility Index is known, gained 22 per cent to 24.62. The index measures the cost of using options as insurance against declines in the S&P 500. Europe’s VStoxx Index, which gauges the cost of options to protect against losses in the Euro Stoxx 50 Index, rose 15 per cent to 33.146.
News that a US citizen originally from Pakistan will face charges for the attempted May 1 car bombing in New York’s Times Square also weighed on US stocks.
“It’s like a triple whammy,” said Michael Nasto, the senior trader at US Global Investors Inc, which manages about $2.5 billion in San Antonio. “The threat of terrorism just adds to investors concern about Europe’s debt situation and a China slowdown. The more we hear about the car bomb suspects, the more we get spooked, especially because it’s in New York.”