US stocks drop on fears over European debt

NEW YORK REPORT

US stocks yesterday suffered their biggest drop since November after a strong showing in Italian elections by groups opposed to the country’s economic reforms triggered worry Europe’s debt problems could again destabilise the global economy.

The decline marks the biggest percentage drop for the benchmark Standard & Poor’s 500 Index since 7 November, and drove the S&P down to its lowest close since 18 January.

The CBOE Volatility Index or VIX, Wall Street’s favourite barometer of fear, surged 34 per cent, its biggest jump since 18 August 2011.

Selling accelerated late in the trading session after the S&P 500 fell below the 1,500 level, which has acted as a significant support point. Yesterday marked the S&P’s first close under 1,500 since 4 February.

Yesterday Italy’s centre-left coalition held a slim lead over former Prime Minister Silvio Berlusconi’s centre-right bloc in the election for the lower house of parliament. But any government must also command a majority in the Senate, a race that is decided by region.

The resulting gridlock in parliament could lead to new elections and cast into doubt Italy’s ability to pay down its debt.

In yesterday’s session, banks and other financial stocks were among the worst performers on worries about the sector’s exposure to Italy’s massive debt. The KBW Bank Index fell 2.7 per cent. The CBOE Volatility Index ended at 18.99, up 34.02 per cent.

The Dow Jones industrial average dropped 216.40 points, or 1.55 per cent, to 13,784.17 at the close. The Standard & Poor’s 500 Index lost 27.75 points, or 1.83 per cent, to 1,487.85. The Nasdaq Composite Index fell 45.57 points, or 1.44 per cent, to 3,116.25.