Stocks fall as Greece struggles to form government

Stocks fall as Greece struggles to form government

May 8th, 2012 by Associated Press in Local - Breaking News

In a Monday, May 7, 2012, photo, trader Patrick Casey, center, works on the floor of the New York Stock Exchange. Futures pointed to losses on Wall Street with Dow Jones industrial futures and S&P 500 futures down 0.5 percent. (AP Photo/Richard Drew)

Photo by Associated Press /Times Free Press.


Political uncertainty in debt-hobbled Europe spread to financial markets Tuesday and pushed stocks sharply lower in Europe and the United States.

The Dow Jones industrial average was down almost 200 points at its low point for the day. It was headed for its fifth straight daily decline, the second time that has happened since April 1.

The euro neared a five-month low against the dollar, and prices for commodities like oil and copper plummeted.

In Greece, the left-wing politician struggling to form a new government declared that the country was no longer bound by its promises to enforce strict budget cuts as a condition of international bailout loans.

Greek voters on Sunday rejected parties that had imposed the deep spending cuts demanded by Greece's bailout lenders. Cuts to pensions and social programs are deepening Greece's crushing recession.

"There is no way we will sneak back in again what the Greek people threw out" in the election, said the politician, Alexis Tsipras.

Tsipras also demanded a moratorium on repaying the part of Greece's debt that is "onerous." The main stock index in Greece closed down 3.6 percent after a 7 percent decline the day before.

After a relatively calm trading on Monday, benchmark indexes in France, Italy and Germany fell 2 percent or more.

In the U.S., traders dumped risky assets and commodities seen as benefiting from economic growth.

The price of oil continued its week-long slide. Copper and silver each lost 2.5 percent. Gold fell to a four-month low, dipping below $1,600 per ounce for the first time since early January.

The stronger dollar was partly to blame for commodities' woes. Commodities are priced in dollars, so a stronger dollar makes them appear more expensive to traders who use other currencies.

Money flowed into safe investments such as U.S. Treasurys, pushing the yield on the 10-year Treasury note down to 1.84 percent from 1.88 percent late Monday.

"You're looking at selling across the board," said Quincy Krosby, market strategist at the insurance company Prudential Financial.

The Dow was down 127 points to 12,881 as of 3 p.m. EDT. All 30 stocks that make up the Dow lost ground.

The Standard & Poor's 500 index dropped 15 points to 1,354. The Nasdaq composite average lost 33 to 2,924.

Markets have been buffeted for three years by shifting perceptions about the gravity of the European debt crisis. At times, many feared a messy string of defaults would set off a global credit crunch.

To soothe bond investors and prevent borrowing costs from rising, leaders of indebted nations agreed to spending cuts that worsened living standards for many of their citizens. They slashed pensions and government jobs, raised retirement ages and eliminated social programs.

Opponents of strict austerity say Europe will be unable to emerge from its recession unless governments spend more to boost demand in the economy. French voters on Sunday elected a president who has spoken out against austerity and promised to cut France's debt load more slowly.

Uncertainty about Europe's path forward is injecting volatility into markets that were placid earlier this year.

The markets had a calm first quarter after international lenders and leaders of Germany, Europe's economic engine, helped push through austerity programs in several indebted nations.

Governments in Italy and Greece fell, replaced by technocrats whom international leaders trusted to navigate the crisis. To shore up the region's shaky banks, the European Central Bank injected billions of euros into the financial system.

As fears about Europe and the U.S. economy reemerged in recent weeks, traders have returned to frenzied buying and selling that recalls mid-2011's record-breaking volatility.

Tuesday was the 10th day since the beginning of April that the Dow has swung by triple digits. Half of those were declines. From January through March, the Dow had only five swings of 100 points or more - all of them gains.

Some corporate news that moved stocks:

- Burger chain Wendy's fell 5 percent after it cut its forecast and said its first-quarter profit missed Wall Street analysts' expectations.

- Watchmaker Fossil plunged 46 percent after saying weak sales in Europe caused its first-quarter revenue to fall far short of expectations. The company also lowered its 2012 earnings forecast.

- Casino operator Wynn Resorts reported a disappointing drop in first-quarter earnings, sending its stock down 5 percent.