While you were sleeping: Stocks slump on China, Spain

While you were sleeping: Stocks slump on China, Spain

(BusinessDesk) March 11 - Stocks in Europe and on Wall Street dropped as bad news from China to Spain to the U.S. fuelled investors’ worries about the global economic outlook.

In midday trading, the Dow Jones Industrial Average dropped 1.31%, the Standard & Poor's 500 Index shed 1.37% and the Nasdaq Composite Index declined 1.52%.

Investors did not like the surprise that China swung to a of US$7.3 billion trade deficit in February, its largest in seven years. Next up, was the downgrade of Spain's sovereign debt rating by Moody’s Investors Service.

For the world’s largest economy, the news wasn’t great either today as in the U.S. initial claims for state unemployment benefits increased 26,000 to a seasonally adjusted 397,000 and the trade deficit widened more than expected to US$46.3 billion in January.

"The market just needed a catalyst. It was so extended. And to me I see the China trade deficit as a catalyst, I see the Spain downgrade as a catalyst," Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, told Reuters.

Mendelsohn said he was eyeing 1,294.26 on the S&P 500 as critical support, adding, "once we take that out, I see 1,250 in my sights pretty easily, so I think this is the beginning of something severe."

Meanwhile, Muammar Qaddafi’s forces resumed air strikes on oil hubs in Libya.

The uncertainty boosted the appeal of fixed-income securities, pushing U.S. Treasuries higher. The yield on the 10-year note fell two basis points to 3.45% in midday trading.

Thirty-year bond yields also declined before today’s US$13 billion auction of the securities.

U.S. Treasuries have the potential to rally over the short term even though the Federal Reserve is scheduled to end its latest program of government debt purchases in the middle of the year, bond fund manager Jeffrey Gundlach told Reuters on Thursday.

The U.S. dollar rose 0.69% against a basket of its major counterparts, bolstered by renewed concern about the euro zone’s debt problems that sent the euro lower.

The U.K. pound dropped as well after the Bank of England kept interest rates at a record low.

After cutting Spain's sovereign debt rating by one notch to Aa2 on Thursday, Moody’s warned of further downgrades.

"[Moody's] believes there is a meaningful risk that the eventual cost of the recapitalisation effort could considerably exceed the government's current projections," the ratings agency said in a statement.

The Bank of Spain will release its own report on banks' capital needs after markets close on Thursday.

Europe’s Stoxx 600 Index lost 1.2%.

Crude oil futures dropped as a rise in the greenback made U.S. dollar-denominated commodities such as oil and gold more expensive.

Brent futures for April shed US$2.11 to US$113.83 a barrel.

"Concerns about the eurozone debt crisis have come back to the surface after the downgrade of Spain," Commerzbank analyst Carsten Fritsch told Reuters. "But I wouldn't expect it to continue, it could be a short-term blip, as the general direction is upwards because of the continued supply risk in Libya and tomorrow's day of rage in Saudi Arabia."

Gold shed 1.5%. Spot gold fell as low as US$1,405.10 an ounce, and was at US$1,407.40 an ounce by 11.05am EST.

"Gold's decline is based on the weakness in the oil market, and there is margin selling in gold to cover the weakness in the stock market," Tom Pawlicki, precious metals and energy analyst at futures broker MF GLOBAL, told Reuters.

(BusinessDesk)

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