Stocks slumped in heavy volume to a 13-month low on Monday as
investors dumped bank shares on fears that Greece's worsening financial crisis
could cause a large European lender to fail.
Investors pegged losses to the
sharp fall in Franco-Belgian financial group Dexia, which fell 10 percent after
a Moody's warning about its liquidity due to concerns about exposure to Greece.
Markets have feared European
officials will be unable to prevent Greece's fiscal crisis from turning into a
global banking crisis. Greece said it will miss its deficit targets this year
and next, which could limit the country's ability to receive more aid.
"Most investors fear that markets in Europe are going to run well ahead
of politicians that are not going to be able to get any kind of reasonable
solution," said Jack de Gan, chief investment officer at Harbor Advisory
Corp in Portsmouth, New Hampshire.
U.S. banks have become a
target for speculators. Morgan Stanley closed at its lowest since December
2008, and the cost to insure its debt has jumped as other banks hedge
counterparty exposures and traders bet on the situation worsening.
The recession that wiped 12
years of gains off the S&P 500 was caused in part by a credit crisis.
"We are going to have a
disorderly default in Greece and there could be another banking crisis in
Europe as they are undercapitalized and loaded with (sovereign) debt," De
Gan said.
Morgan Stanley has been the
most volatile bank in recent weeks, with the cost to insure its debt rising to
November 2008 levels, according to Markit data.
Morgan Stanley shares fell 7.6
percent to $12.47 and the S&P financial sector was down 4.5 percent.
The market's focus on Morgan
Stanley stems from a perception about their reliance on short-term funding,
said Harbor Advisory's De Gan. "They rely on the credit markets and that
was the downfall of Lehman and other institutions three years ago," he
said.
The Dow Jones industrial average dropped
258.08 points, or 2.36 percent, to 10,655.30. The S&P 500 fell 32.19
points, or 2.85 percent, to 1,099.23. The Nasdaq Composite lost 79.57 points,
or 3.29 percent, to 2,335.83.
The S&P 500 broke through
a previously strong technical support level near 1,120 before hitting a
13-month intraday low just below 1,100.
The benchmark is also down
19.4 percent from its closing high this year, nearly entering a bear market,
which is defined as a 20 percent decline from its recent high set on April 29.
A stronger-than-expected
reading in a gauge of U.S. manufacturing briefly lifted Wall Streetstocks,
but global manufacturing shrank for the first time in over two years in
September, reinforcing fears of another recession.
The revelations that Athens
would miss its deficit targets for both this year and next despite harsh new
austerity measures will be the focus of talks as euro zone finance ministers
meet to discuss the next steps toward resolving the currency area's sovereign debt crisis.
Dexia called an emergency
board meeting after concerns about its exposure to Greece and a Moody's warning
about its liquidity position raised pressure on Belgium and France to act.
Shares of AMR Corp , parent of
American Airlines, lost a third of their market value as analysts debated the
prospects for a bankruptcy filing for the U.S. airline, which lags its industry
peers.
More than 11 billion shares
traded on the New York Stock Exchange, NYSE Amex and Nasdaq,
about 38 percent above the year's current daily average of 7.98 billion.
Declining stocks outnumbered
advancing ones on both the NYSE and Nasdaq by a ratio of about 10 to 1.
(Reporting by Rodrigo Campos;
Additional reporting by Karen
Brettell; Editing by Kenneth Barry)
Source : Reuters
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