Global stocks slid on worries Greece could leave the eurozone, while oil prices fell after a move by economic powerhouse China to prop up lending sparked fears its economy was weaker than has been thought.
Data pointing to a deeper European recession, along with growing unease about the Greek debt crisis, pushed European shares down nearly 2 per cent to a four-and-a-half-month closing low. Stocks on Wall Street touched a three-month low, while the euro hit a near four-month low against the dollar on Greek fears.
After falling to parity with the greenback, the Australian dollar has continued its slide and is now buying 99.69 US cents. The political uncertainty is also set to weight on local stocks, with futures markets this morning indicating a fall of 32 points on the ASX200.
Madrid and Milan shares plunged by more than 3 per cent earlier on heightened concern that the pair could fall victim to the eurozone sovereign debt crisis, should Greece leave the eurozone.
In London, the benchmark FTSE 100 index of top companies lost 1.97 per cent to 5465.52 points, while in Frankfurt the DAX 30 dropped 1.94 per cent to 6451.97 points and in Paris the CAC 40 fell 2.29 per cent to 3057.99 points.
US stocks also closed firmly in the red on Greece’s political stalemate, while turmoil at JPMorgan Chase over its $US2 billion derivatives loss announced last week kept US bank shares under pressure.
The Dow Jones Industrial Average slid 125.40 points, or 0.98 per cent, to 12,695.20 in closing trade.
The S&P 500 fell 15.04 (1.11 per cent) to 1338.35, while the tech-rich Nasdaq dropped 31.24 (1.06 per cent) to 2902.58.
Government debt gained, pushing German yields to record lows, after coalition talks in Greece on Sunday faltered and increased the chance of mid-June election. President Karolos Papoulias summoned political parties to a third day of talks on Tuesday, but the Greek Socialist leader, Evangelos Venizelos, said he was not optimistic a new government could be formed.
The yield on US Treasuries, which moves inversely to price, fell to the lowest level since early October, breaking decisively below 1.80 per cent, a key resistance point.
The benchmark 10-year US Treasury note was up 15/32 in price to yield 1.79 per cent.
“Treasuries are higher as fears about new political realities in Germany and Greece, global growth and Spanish banks drive investors into safe-haven debt markets,” said William O’Donnell, managing director and head of US Treasury strategy at RBS Securities in Stamford, Connecticut.
German Chancellor Angela Merkel’s Christian Democrats suffered a crushing defeat on Sunday that could embolden the opposition left to step up attacks on her European austerity policies. Merkel said on Mon day the defeat was a bitter setback but would not alter her view on how to achieve growth.
Safe-haven currencies, such as the dollar and the Japanese yen, rose. Expectations are for the euro to continue to fall, driven by speculation over the implications of Greece’s possible exit from the eurozone.
Factory output falls
Compounding the picture for investors was data that showed output at factories in the eurozone unexpectedly fell in March, the latest in a series of disappointing numbers signaling the bloc’s recession may not be as mild as policymakers hope.
Industrial production in the 17 countries sharing the euro fell 0.3 per cent from February, the EU’s Eurostat statistics office said. Economists polled by Reuters had expected a 0.4 per cent increase in March.
Signs of a struggling Chinese economy also weighed on investor sentiment. China, the world’s second-biggest economy, cut bank reserve requirements on Su nday to free up an estimated 400 billion yuan ($US63.5 billion) for lending in a bid to avert a sudden slowdown.
The FTSEurofirst 300 index of top European shares ended down 1.8 per cent at 1004.20, its lowest close since Dec. 30.
MSCI’s measure of world stock markets fell 1.5 per cent to 310.43.
German Bund futures rose as much as 92 ticks on the day to an all-time high of 143.69, while German 10-year yields plumbed a record low of 1.434 per cent.
Oil fell sharply to extend recent heavy losses as the mounting political uncertainty over Greece and the prospect for slower growth in China, the world’s second-biggest energy consumer, weighed on the demand outlook for energy.
Brent crude fell 69 cents to settle at $US111.57 a barrel. US crude fell $US1.35 to settle at $US94.78 a barrel.
Prices for Brent crude have fallen 6.2 per cent and for US crude 8.4 per cent in the two weeks ended Friday.
Gold prices also fell as the political deadlock in Greece fueled risk aversion and put pressure on the euro.
Spot gold prices lost $US15.83 to trade at $US1563.60 an ounce, after earlier hitting a session low of $US1556.61 an ounce, its lowest since Dec. 30.
The euro fell 0.57 per cent to $US1.2841. The US dollar index was up 0.43 per cent at 80.611, and against the Japanese yen, the dollar was down 0.10 per cent at 79.84 yen.
Analysts said the euro could hit the 2012 low of $US1.2623 in coming weeks, with some forecasting a break toward $US1.20.