Wed Nov 7, 2012 4:45pm EST
* World stocks fall on worries over U.S. fiscal cliff
* S&P500 posts biggest drop since June, Dow off 300-plus
* Euro weakens before Greece vote on austerity
* U.S. bonds, dollar rise on safe-haven bids
* Gold retreats from 2-week high, oil tumbles
By Richard Leong
NEW YORK, Nov 7 (Reuters) – Shares on world markets slumped
and the euro slid further on Wednesday as investors worried that
the fiscal challenges facing U.S. President Barack a day after
his re-election could lead to a new recession.
Fresh concerns about Europe’s debt crisis added to the
jitters among investors, who scrambled for safer assets.
Benchmark U.S. Treasury yields were set for their biggest
one-day fall since May.
Markets doubted that Obama can reach a timely deal with
Republican lawmakers in the lame-duck session of a divided
Congress to avert the “fiscal cliff” – some $600 billion in
automatic tax hikes and spending cuts set to kick in on Jan. 1.
“The minute such a deal is cut, we’ll boom. If one is not
cut – and soon – we may well double-dip into recession,” said
Robert L. Reynolds, president and chief executive of Putnam
Investments in Boston.
“This upcoming lame-duck session may just be the most
consequential in our lifetimes. The stakes are high and the time
is short,” he said in a statement.
Rhetoric from Obama and some top lawmakers on Wednesday
suggested a possibility of reaching a compromise to avoid to a
dire path for the economy and further erosion of the country’s
creditworthiness, but the contentious history between the two
main political parties offered little confidence to investors.
Traders were also anxious about a vote in Greece’s
parliament later on Wednesday on an austerity package needed to
secure a fresh injection of international aid and avert
bankruptcy, which would rock the euro zone and world markets.
European Central Bank President Mario Draghi said the ECB
expects the euro zone economy to remain weak “in the near term”
and that the problems were spreading to Germany.
“If the Greek vote doesn’t go through, there is a lot of
downside risk to the euro as talk of a Greece exit will
re-emerge,” said Jane Foley, senior currency strategist at
Back on Wall Street, the market drop hark back to the one on
the day after Obama won his first White House term in 2008.
The Standard & Poor’s 500 index was set for its worst
one-day loss since June. It ended down 33.86 points, or 2.37
percent, at 1,394.53.
The Dow Jones industrial average finished down 312.95
points, or 2.36 percent, at 12,932.73, while the Nasdaq
Composite Index was down 74.64 points, or 2.48 percent,
Energy, healthcare, defense and the banking sectors ranked
among the hardest hit after Obama defeated Republican Mitt
Romney, whose policy positions favored those industries.
Despite Wednesday’s ominous market reaction to a second
Obama presidential term, the S&P had rallied 67 percent from the
depth of global credit crisis under hisfirst term – one of Wall
Street’s best runs ever under a single president.
The FTSE Eurofirst 300 index of top European shares
closed down 1.4 percent, its biggest drop in two weeks, at
Bucking the market were French banking stocks. They were
helped by BNP Paribas’ forecast-beating quarterly
earnings, which sent its shares 1.0 percent higher to 39.54
European and Asian stock markets rose initially on relief
buying when U.S. election results for the White House and
Congress were clear and reinforced expectations the Federal
Reserve’s ultra-loose monetary policy will continue.
The MSCI world equity index was briefly 0.4
percent higher before falling 1.46 percent to 326.86.
As worries over the U.S. fiscal cliff and Greece’s austerity
votes moved to the forefront, investors flocked to the safety of
low-risk assets, including the greenback and U.S. and German
The U.S. dollar recovered from early losses, resuming its
rally during this week’s tense run-up to the U.S. election. The
dollar index that measures the greenback against a basket of
major currencies was up 0.2 percent, touching a two-month
high earlier at 80.795.
The euro on the other hand fell 0.4 percent to
$1.2762, retreating from a session high of $1.2876.
Gold turned lower after hitting a two-week high. It
was last 0.3 percent lower at $1,720.40 an ounce.
In the bond market, the yield on 10-year Treasury notes
ended 11 basis points lower at 1.6246 percent for
its biggest single-day drop since May 30, according to Reuters
German Bund futures climbed 66 basis points, or 0.5
percent, at 142.75.
Worries about weaker energy demand caused a sell-off in the
oil market after it rallied on Tuesday. Brent crude oil
fell $4.25 to settle at $106.82 a barrel and U.S. oil futures
settled down $4.27 at $84.44.