Dow crashes below 10,000 on China fears

THE DOW crashed below 10,000 for the first time in almost four months yesterday as reports that China was reviewing its Eurozone debt holdings reignited investors’ fears that the sovereign debt crisis could derail the global economic recovery.

The Dow Jones eventually closed 0.69 per cent lower at 9,974.45 – reversing the tentative gains that had seen it open 135 points higher in early trading. The fall followed the Financial Times report that representatives of China’s State Administration of Foreign Exchange, or SAFE, which manages the reserves under the country’s central bank, have been meeting with foreign bankers in Beijing to discuss its Eurozone bond holdings. SAFE holds an estimated $630bn (£438bn) of Eurozone bonds in its reserves.

The fears over China came as a German five-year bond auction failed for the first time since September 2008 in a fresh sign of the crisis in the Eurozone debt markets.

The five-year auction only attracted bids from investors of €6.1bn (£5.2bn) after debt managers had said they had wanted to raise €7bn. Debt managers eventually sold €5.45bn, retaining 22 per cent of the offer, but the average yield was 1.47 per cent compared with 2.2 per cent at the last similar auction a month ago.

Meanwhile, IMF chief Dominique Strauss-Kahn yesterday urged EU countries to coordinate their national crisis recovery plans, notably by using part of a one-trillion-dollar EU-IMF stabilisation fund to boost growth.

“Part of this money should be used to boost growth, because without growth prospects in the Eurozone and European countries it will be difficult to get out of the crisis,” he said referring to the €750bn rescue package.