Shares drop on Wall Street amid global worries

Worries about Europe’s debt crisis and possible moves by the authorities in Asia to slow fast-paced growth there swept the world’s markets on Tuesday and pushed stocks in the United States sharply lower.

As finance ministers from the 16 countries that use the euro met in Brussels to discuss the problems in Ireland, investors were nervous that the debt crisis could spread across the Continent to Portugal and to Spain.

“There is a worry about the state of things overseas. It is the European debt crisis that is causing this,” said Zach Pandl, economist at Nomura in New York.

Stocks worldwide, which have been grinding lower since the Federal Reserve announced its asset purchase program to stimulate the economy, fell for the seventh consecutive day.

The Dow Jones industrial average briefly fell below 11,000 for the first time since mid-October. At the close, it was 11,023.50, down 178.47 points, or 1.59 percent.

The Standard & Poor’s 500-stock index fell 19.41 points, or 1.62 percent, to 1,178.34. The Nasdaq composite index fell 43.98 points, or 1.75 percent, to 2,469.84.

Economists said that the criticism of the Fed’s policy by Republican politicians was also raising doubts about whether the central bank would carry out the entire quantitative easing program, contributing to the drag on stocks.

The speculation that the Fed would bow to political pressure and curtail its program had led to a heavy sell-off in the United States government bond market since late last week.

That decline, however, reversed slightly on Tuesday when bond prices recovered. The yield on the benchmark 10-year Treasury note fell to 2.84 percent, from 2.96 percent on Monday. The price, which moves in the opposite direction, rose by 1 to 98 4/32.

Other concerns troubling stock investors were that the newly empowered Republican Party in Washington would be less willing to support state and local government borrowing.

“A lot of this is a correction, and the recognition that we still have a lot of problems here,” said Larry Kantor, head of research at Barclays Capital in New York.

Labor Department figures showed that producer prices rose 0.4 percent in October. That was below analysts’ expectations, and showed subdued inflationary pressures, economists said. The core measure, excluding food and energy costs, fell 0.6 percent.

Other data showed industrial production flat in October.

The recent sell-off in stocks reverses the rally that first greeted the announcement on Nov. 3 of the Fed’s $600 billion program intended to push rates lower and stimulate the economy. The stock market has enjoyed a rally of about 15 percent since late August on expectations of the new policy.

Economists said the declines in the stock market on Tuesday wiped out some of those gains.

Stock markets across Europe also fell sharply. In Britain, the FTSE 100 closed down 2.38 percent, at 5,681.90. In Germany, the DAX was down 1.87 percent.

Michael Gapen, another economist at Barclays Capital in New York, said that so far markets had been concerned for the most part about Greek and Irish indebtedness, but investors were worried about what would happen if Spain, a much bigger country, was dragged into Europe’s debt crisis and required a bailout.

“There is a contingent out there who believe Greece and Ireland will eventually have to take some public funds, and there will be an orderly restructuring following the process put in place six months ago,” he said. “But they don’t know what will happen if sovereign risk spreads to Spain and it gets in trouble.”

China also weighed on the markets. Recent data has shown a still strongly growing Chinese economy. Investors worried that Chinese authorities would react to recent increases in food prices by taking steps to slow the nation’s economy. That would have an effect on world demand.

The Shanghai composite index, which has fallen sharply in recent sessions, fell 4 percent.

As investors anticipated a slowdown in Chinese growth, prices of commodities fell sharply. Oil prices fell to $82.34.
Source: The New York Times

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