The FINANCIAL — Stocks on Wall Street opened sharply lower Monday.
Investors got their first opportunity to sell since Standard & Poor’s cut the United States’ credit rating last week, remarked NY Times.
The ECB was forced to intervene to address concerns the debt crisis is spreading to Spain and Italy.
According to BBC, yields on Spanish and Italian bonds fell sharply after the bank's move.
"Thanks to the ECB's intervention, [yields have] collapsed dramatically. I can't remember the last time I saw such a big move down," said Louise Cooper at BGC Partners.
As BBC editor, Gavin Hewitt assesses, “from the sidelines, many voices say that the answer to all of this is to launch a Eurobond that would essentially turn nation's debts into common European debt. But in order to get close to selling this idea to the German public, the weaker countries would have to agree to a massive loss of sovereignty. Germany, France etc. would essentially want to manage the tax and spending of countries like Greece and Italy.”
Following on from a dismal showing in European and Asian markets, the broader United States market as measured by the Standard & Poor’s 500-stock index was down 36.24 points, or 3.02 percent. The Dow Jones industrial average was down 282.3 points, or 2.47 percent, and the Nasdaq was down 84 points, or 3.32 percent.
Guy LeBas, chief fixed-income strategist for Janney Montgomery Scott, said the relatively limited early declines suggested that the market had already factored in the downgrade.
“It is by no means a disaster,” Mr. LeBas said. And higher prices for bonds were “a testament to the fact that global investors view U.S. bonds as the safe-haven asset choice.”
The declines, if sustained through the trading session, are set to shave even more value from equity portfolios after last week’s declines, which made up the worst drop in a five-day trading period since November 2008. By last Friday, the S.&P. 500 had dropped 7.1 percent for the week and the Dow was down 5.7 percent.
NY Times writes that The Treasury’s benchmark 10-year note yield was down to 2.47 percent from 2.56 percent on Friday. Gold topped $1,700 for the first time, and the dollar continued to weaken against most major currencies.
While the decision late Friday by the ratings agency Standard & Poor’s to downgrade the United States’s debt rating one level to AA+ from AAA was likely to continue to reverberate, investors are also concerned about the weak United States economy and Europe’s debt problems.
The interest rates on Spanish and Italian bonds plummeted after the European Central Bank expanded its purchases of government debt to support those countries for the first time. The yield on 10-year Spanish bonds dropped by 88 basis points, while comparable Italian yields fell 80 basis points. News agencies cited traders as saying the E.C.B. was intervening in the secondary market to buy the securities.
Previously the bond buying had been limited to bonds from Greece, Portugal and Ireland — the three euro-zone countries that have already received international bailouts, adds Euro Commission web-site too. Fears that the bloc’s sovereign debt crisis would spread to the much bigger economies of Italy and Spain had contributed greatly to recent market losses.
European leaders agreed last month to revamp their bailout fund to allow it to purchase bonds on the secondary market, but those powers still have to be drafted and ratified by national parliaments, which will take weeks, at best.
European equities opened higher, but the rally fizzled, dashing hopes that the ECB’s actions would be enough to soothe broader market jitters.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 1.45 percent, while the FTSE 100 index in London fell 1.72 percent.
The euro fell to $1.4175 from $1.4282 late Friday in New York. But the dollar hit new lows against the Swiss franc, falling to around 0.7480 franc, before recovering to 0.7637 franc. The dollar also fell to 77.87 yen from 78.40 yen.
In Asia, the Tokyo benchmark Nikkei 225 stock average fell 2.2 percent. In Hong Kong, the Hang Seng index fell 2.2 percent, and in Shanghai the composite index closed 3.8 percent lower.
United States crude oil futures for September delivery fell 3.2 percent to $83.67 a barrel.
Comex gold futures raised $47.40 to $1,699.20 an ounce, having traded as high as $1,715.50, their first time to break through $1,700. Adjusted for inflation, however, gold remains well below its record of more than $2,400 an ounce, according to Capital Economics.
The S&P downgrade has global implications, said Alessandro Giansanti, a credit market strategist at ING in Amsterdam.
Mr. Giansanti noted that the yields on United States government bonds had actually fallen Monday, partly because the downgrade had been expected, but also because of the increasing gloom about the growth outlook.
“The bond market is now pricing in a greater-than-50 percent probability of another U.S. recession by by late 2011 or early 2012,” he said.
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