New York - Stocks and the euro fell on Tuesday after Greece’s call for a referendum on last week’s euro zone bailout deal threw into question the survival of the crucial rescue effort.
US stocks tumbled 3% on Tuesday after the euro zone agreement to rescue Greece and keep the sovereign debt crisis from spreading was upended.
The Dow Jones industrial average dropped 311.13 points, or 2.60%, to 11 643.88. The Standard & Poor’s 500 Index dropped 36.28 points, or 2.89%, to 1 217.02. The Nasdaq Composite Index dropped 82.09 points, or 3.06%, to 2 602.32.
Data showing an unexpected slowdown in Chinese and US manufacturing, combined with news on Monday of the bankruptcy of US futures broker MF Global, also hurt risk-taking as investors rushed into safer investments, such as US and German government bonds.
“The market did not see this Greek referendum coming, which is potentially a killer and could knock the wheels off the bus of the whole (European rescue) plan,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
Greek Prime Minister George Papandreou’s announcement late Monday that he will put Greece’s bailout to a referendum cast doubt on the euro zone’s plan to loan Athens 130 billion euros and arrange a 50% write-down on its huge debt.
If Greeks vote against the rescue package, it could result in a disorderly default on their country’s debt and hamper efforts to contain the euro zone’s debt crisis from spiraling
into a global crisis.
The referendum is not expected to be held until early 2012, which means uncertainty is likely to continue into year-end.
“The referendum is a bad idea with a bad timing. The post-summit rally is over,” said Lionel Jardin, head of institutional sales at Assya Capital in Paris.
However, stocks and the euro came off their session lows after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they are determined to fully implement the European Union’s rescue measures.
The two key figures behind the Greece bailout plan said they would meet with Greek leaders, the International Monetary Fund and European bankers in Cannes, France, on Wednesday.
About 11 a.m. (15:00 GMT), the Dow Jones industrial average was down 216.64 points, or 1.81%, at 11,738.37. The Standard & Poor’s 500 Index was down 24.80 points, or 1.98%, at 1,228.50. The Nasdaq Composite Index was down 53.03 points, or 1.98%, at 2,631.38.
The FTSEurofirst 300 index of top European shares was down 3.2% and MSCI’s all-country world stock index shed 3.0%.
Euro zone banks were hammered, with French bank shares suffering steep declines due to heavy exposure to Greek sovereign debt. BNP Paribas fell 11%; Societe Generale was down 15% and Credit Agricole lost 10%.
Earlier, Japan’s Nikkei stock index closed down 1.7%. Heavy losses across global stock markets revived safety bids for German Bunds and US Treasuries for a second
day.
German Bund futures jumped 2.4 points to 137.88, the its highest level in nearly a month, while prices on benchmark 10-year Treasury notes rose nearly 1 point, sending its yield down to 2.02%.
In the currency market, the euro fell against the dollar, sinking near a three-week low.
The euro fell 1.3% to $1.36080, its lowest since October 12 on trading platform EBS and was last at $1.36789, down 1.7%.
The dollar was steady against the yen, a day after rising to a three-month high due to Japan’s latest intervention. Japan sold an estimated $65 billion to $75 billion of its currency to curb its rise versus the greenback. The dollar was last at 78.28 yen.
A strengthened dollar and worries about the Greek vote on its aid package hurt oil, gold and other commodity prices.
Brent crude futures in London shed 2% to $107.30 a barrel, while spot gold slipped 0.4% to $1.705.59 an ounce.